2009 White Paper on Small and Medium Enterprises in Japan

2009White Paper on Small and Medium

Enterprises in JapanFinding Vitality through Innovation

and Human Resources

JSBRIJAPAN SMALL BUSINESS RESEARCH INSTITUTE

2009 White Paper on Sm

all and Medium

Enterprises in JapanFinding Vitality through Innovation and H

uman Resources

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and Human Resources

Foreword

This is an unabridged English translation of the 2009 White Paper on Small and Medium Enterprises in Japan

– Finding Vitality through Innovation and Human Resources, which summarizes the trends for SMEs in Japan, pub-

lished by the Japan Small Business Research Institute, with the approval of its original author, the Small and Medium

Enterprise Agency of the Ministry of Economy, Trade and Industry.

As shown by various figures and indicators in Chapter 1, the Japanese economy could not escape the impact of

the current global economic recession. The effect is apparent in the deteriorating business conditions of SMEs in all

industries and regions, not to mention the overall recession of the Japanese economy, including negative real GDP

growth for three consecutive quarters, a major plunge in exports mainly in the automobile industry, and the record drop

in the Index of Industrial Production. The rapid decline in production had repercussions in the employment picture and

financial situation, which put Japan’s SMEs in a severe management environment of unprecedented difficulty.

Against such adverse conditions Chapter 2 suggests that “innovation” can be one way of addressing the challenge

of revitalizing SMEs. “Innovation” in general tends to be taken as technological innovation, but it also encompasses

such concepts as the opening up of sales channels, development of new product lines and services, and the exercise of

creativity in the workplace. The White Paper acknowledges once again the presence of robust SMEs that bring about

these kinds of innovation.

Also, as in previous white papers, SME policies implemented by the Government of Japan are summarized at the

end of the book. This also includes explanations on “emergency guarantees” and “safety-net loans” for SME financing,

as well as other assistance measures for SMEs in response to the current economic environment.

I hope this report will help people throughout the world who are involved with SMEs, including researchers, to

gain a better understanding of Japan’s SME trends and policies. It is my wish that this document will also benefit the

development of SMEs worldwide.

Masataka NakanoChairmanJapan Small Business Research Institute

©

Ministry of Economy, Trade and Industry

Japan Small Business Research Institute

2009

First printing: September 2009

All rights reserved. This publication, or parts thereof, may not be reproduced in any form

for resale or other commercial purposes unless written permission has been expressly

given. Private, educational, institutional or other non-profit organizations may consider

permission to have been herein granted for any necessary reproduction provided that a

copy of any publication in which it appears is forwarded to Japan Small Business Research

Institute, Sanbancho-KS Bldg., Sanbancho 2, Chiyoda-city, Tokyo 102-0075, Japan.

Edited by

SMALL AND MEDIUM ENTERPRISE AGENCYMINISTRY OF ECONOMY, TRADE AND INDUSTRY

Translated by

JAPAN SMALL BUSINESS RESEARCH INSTITUTE


Enterprises in Japan

Finding Vitality through Innovation and Human Resources

On publication of the 2009 White Paper on Small and Medium Enterprises in Japan

Japan’s small and medium enterprises (SMEs), and small enterprises are facing an extremely severe economic envi-ronment as the effects of the global financial crisis which began in the autumn of 2008 reached the real economy.

The Government of Japan has been responding to this situation in a speedy manner by formulating a series of economic measures and enacting the fiscal 2009 supplementary budget – the largest ever single supplementary budget – on May 29, 2009.

The most pressing issue of all is financing-related measures. The Government has put into place emergency guar-antees and safety-net loans in order for SMEs and small enterprises to continue operating with a sense of reassurance, and subsequently expanded the cap of these measures to ¥47 trillion. It has also enhanced loans leading to managerial improvements through such means as a major expansion of the Marukei loans. Further, efforts have been devoted to developing a business-friendly environment for SMEs and small enterprises, which includes measures for ensuring proper subcontracting trade.

However, the current recession cannot be overcome by governmental actions alone. A path for revitalizing the Japanese economy can be opened only when Japan’s SMEs and small enterprises, which number as many as 4.2 million and employ 70% of Japan’s labor force, adopt a forward-looking stance and invest vigorously. This makes it all the more important for SMEs and small enterprises to proactively invest in “innovation” and “human resources.”

Diverse SMEs and small enterprises are the source of innovation for Japan. At the same time, it is important for proprietors to take leadership in adapting to the changing needs of the market, and to manage an enterprise in a way that best utilizes their wisdom and ingenuity. Also, efforts to carve out new businesses such as through collabora-tions between agriculture, commerce and industry, and to expand sales channel to emerging countries including Asia, which enjoy economic growth even after the financial crisis, will be crucial for SMEs and small enterprises to continue growing.

Meanwhile, “human resources” remain the most important management resource, and proactive efforts are needed in securing and training personnel even as we are in these most difficult time. Rather, the current recession could even be taken as a chance for SMEs and small enterprises to recruit outstanding personnel. It is expected that by overcoming the current difficulty through the joint, shoulder-to-shoulder efforts of management and employees, SMEs and small enterprises will gain new managerial strength through the sense of mutual trust in the workplace.

I will conclude by expressing my determination to find a way out of the current recession and put the Japanese economy on track for recovery by identifying our policy goals with the SMEs and small enterprises and presenting for them a bright future vision.

Toshihiro NikaiMinister of Economy, Trade and IndustryJune 2009

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Overview of the 2009 White Paper on Small and Medium Enterprises in Japan

The 2009 White Paper analyzes the trends in fiscal 2008 when business conditions for small and medium enterprises (SMEs) worsened further and they ran into unprecedented difficulties. Amidst this situation, focus was put on analyzing innovations at SMEs, and how they were underlined by recruitment and the development of human resources, from the viewpoint of ascertaining how SMEs should overcome current hardships by utilizing their unique strengths of “creativity” and “mobility” in a more proactive way.

Chapter 1 The economic and financial situation surrounding SMEs in fiscal 2008The global economic slowdown triggered by the global financial crisis caused a rapid deterioration of the Japanese

economy and clouded its employment picture. Against this background, this chapter analyzes the trends in SME business conditions and financing, among other matters.

• Adeclineinexportscausedmanufacturingoutputtoplummetandsubcontractingorderstodecreasedrastically.Assuch,SMEs faced a dip in sales, and business and financing conditions worsened.

• Inresponsetothissituation,thegovernmentinitiatedaseriesofSMEmeasures,including¥30trillioninSMEfinancing-related measures and measures for fair subcontracting transactions.

Chapter 2 The creation and development of markets by SMEsThis chapter analyzes challenges for SMEs in maintaining and expanding sales amidst the difficult economic situation

by grasping changing market needs and bringing about innovation.

• Characteristics(strengths)ofSMEinnovationrestmainlyinthemanagement’screativityandspeedydecisionmaking.• SMEsworkinginR&Dtendtoseebetterbusinessconditions.Itisexpectedthattheywillworkonrealizinginnovation

viaR&Dandothermeans,thecurrentdifficultbusinessenvironmentnotwithstanding.• InorderforSMEstodevelopsaleschannels,itisimportanttodevelopcollaborationsbetweenagriculture,commerce

and industry, find new clients through the use of IT, and develop overseas markets, in addition to merging manufacturing (monodzukuri) and services in order to pinpoint market needs.

• ConcerningmanagementresourcesthatsupportSMEinnovation,strategicprotectionandutilizationofintellectualproperties are needed, as well as the transmission of technological and technical skills to develop personnel capable of innovation, and the improvement of the assessment abilities of financial institutions, which are responsible for supplying funds.

Chapter 3 Employment trends, and securing and training personnel in SMEsThis chapter analyzes the challenges toward recruiting and training personnel that support SMEs, while giving an

overview of the current situation concerning the employment trends among SMEs and personnel working in SMEs, against the background of the worsening employment picture.

• Althoughanoverallsenseof“surplus”isincreasingamongSMEsaccordingtotheworkersurplusandinsufficiencyDI,employment mismatch is also appearing as a sense of “insufficiency” remains among some SMEs.

• PermanentemployeesworkinginSMEstendtomoreoftenberecruitedmid-careeramongnon-permanentemployeesand people switching jobs from other industries. In light of the difficult employment situation, it is important to match job-seekers with SMEs that lack sufficient personnel.

• LookingattheworkconditionsofSMEs,somepermanentemployeesofSMEsreceivewagesthatarehigherthantheaverage at large companies. There is also almost no difference in the “work satisfaction” between large enterprises and SMEs. It is now important to improve the motivation and capacities of employees in SMEs by increasing their interac-tions with the management, as well as by other means.

vii

Contents

Chapter 1 The economic and financial situation surrounding SMEs in fiscal 2008 ............................................................................................... 1

Section 1 Trends in the domestic and global economy in fiscal 2008 ...................................... 2

1. The global financial crisis and the slowdown in economic growth ............................. 2 2. The worsening of economic conditions in Japan ........................................................ 5 3. The worsening of the employment picture .................................................................. 6 4. The soar and plunge of crude oil and raw material prices .......................................... 8

Section 2 Trends among SMEs in fiscal 2008 ............................................................................. 10

Section 3 Challenges SMEs are facing ....................................................................................... 19

1. Impact of export decline on SMEs ............................................................................ 19 2. SMEs’ financing trends .............................................................................................. 24 3. Impact of crude oil and raw material price spikes ..................................................... 32 4. Challenges for the future ............................................................................................ 35

Chapter 2 The creation and development of markets by SMEs ........................... 39

Section 1 Innovation by SMEs ...................................................................................................... 40

1. Why is innovation necessary now? ............................................................................ 40 2. Features of innovation by SMEs ................................................................................ 42 3. Challenges in aiming for innovation ........................................................................... 52 4. The role of SMEs in economic growth ....................................................................... 53 5. Current situation and challenges in research and development ............................... 58

Section 2 Market strategies of SMEs .......................................................................................... 70

1. Efforts to understand customer needs .......................................................................70 2. Market strategies utilizing IT .......................................................................................82 3. The efforts of SMEs to cultivate markets overseas ....................................................85 4. SMEs’ efforts to make salable products .....................................................................93

Section 3 Protection and utilization of intellectual property by SMEs ................................... 98

1. Trends relating to intellectual property rights ............................................................ 98 2. SMEs’ intellectual property-related activities .......................................................... 100 3. The relationship between business performance and

intellectual property-related activities ...................................................................... 107 4. SMEs’ approach to open innovation ........................................................................ 107 5. The effects of acquiring intellectual property rights ................................................. 111 6. Issues surrounding the intellectual property strategies of SMEs ............................. 116

Section 4 Recruiting and working toward the development of the kind of skilled technical personnel that generate innovation ............................................ 118

1. The knowledge and abilities required of skilled technical personnel and innovative human resources .............................................................................. 118

2. Recruiting skilled technical personnel ..................................................................... 123 3. Developing innovative human resources ................................................................. 130

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Section 5 The financing of SMEs carrying out research and development ......................... 138

1. Conditions surrounding the financing of SMEs carrying out research and development ...................................................................................... 139

2. The present state of SME equity financing and related issues ............................... 145 3. Borrowing from financial institutions by SMEs engaging

in research and development ................................................................................... 152

Chapter 3 Employment trends, and securing and training personnel in SMEs ................................................................... 159

Section 1 Employment trends and the current situation regarding personnel working in SMEs ......................................................................................................... 160

1. Employment trends in SMEs .................................................................................... 160 2. Current situation regarding human resources working in SMEs ............................. 166 3. Human resource mobility with regard to SMEs ....................................................... 176 4. Efforts by SMEs to secure and train personnel ....................................................... 187

Section 2 Internships and other activities carried out in collaboration with educational organizations ................................................................................ 187

1. Interaction between SMEs and educational institutions ......................................... 187 2. The present state of SME internships and related issues ....................................... 192

Section 3 The SME wage system ............................................................................................... 197

1. Situation of SME wage levels ................................................................................... 197 2. Seniority-based wages and performance-based wages ........................................ 198 3. Factors which impact wage levels ........................................................................... 206 4. Towards the improvement of labor productivity ....................................................... 211

Section 4 Enhancement of employee motivation and capabilities........................................ 212

1. Rewards from work for SME employees ................................................................. 212 2. Communication between management and employees ......................................... 217 3. Measures to enhance employees’ capabilities ........................................................ 220

Section 5 Working style and work life balance ........................................................................ 224

1. The current situation and issues of the work life balance ....................................... 224 2. Employment of women ............................................................................................ 229 3. Employment of the elderly ....................................................................................... 244

Conclusion Finding vitality through innovation and human resources ............. 252

SME policies planned for fiscal 2009 ............................................................................................... 253

Appended notes ............................................................................................................................... 277

Bibliography ...................................................................................................................................... 308

Supplementary statistical data .......................................................................................................... 311

Index of figures ................................................................................................................................. 342

ix

1. In this report, the term “small and medium enterprises” (SMEs) refers to small and medium enterprises as defined under Article2,Paragraph1oftheSmallandMediumEnterpriseBasicLaw,andtheterms“smallenterprises”and“microenterprises” refer to “small enterprises” as defined under Article 2, Paragraph 5 of said law. More specifically, they may generally be categorized as follows.

1) Manufacturing, construction, transport,other industries (excluding 2)-4))

2) Wholesale3) Services4) Retail

IndustryCapital No. of regular employees

Up to ¥300 million Up to 300 Up to 20

No. of regular employees

Small and medium enterprises(meet one or more of the following conditions)

Of which small enterprises

Up to ¥100 million Up to 100 Up to 5Up to ¥50 million Up to 100 Up to 5Up to ¥50 million Up to 50 Up to 5

2. Business establishments are sometimes regarded as enterprises for the purposes of analyses in this report that make use of statistics based on the number of business establishments. In such cases, SMEs are business establishments that satisfy the above conditions regarding number of employees. In some cases, therefore, the business establishments of large enterprises may be treated as SMEs.

3. ThisreportdrawslargelyonstatisticaldatapublishedbytheJapaneseGovernmentandBankofJapan(BOJ).However,use is also made of analyses based on these data and studies conducted by various entities in the private sector. Sources, methods of calculation and other relevant information are specified where data are cited. However, the main sources cited in this report are described briefly below. (Unless otherwise noted below or in the main text, the unit of measure-ment used in statistical data is the enterprise.)(1) Ministry of Economy, Trade and Industry (METI), Census of Manufactures Thissurveyprovidesstatisticsonnumbersofbusinessestablishments.Surveysconductedinyearsendingin0,3,5

and 8 are of the total number of business establishments, and surveys in other years are of business establishments and similar entities with at least four workers. Analyses based on these statistics are therefore only of business establishments with four or more workers.

In this report, the data on business establishments in each year are concatenated for analysis. It is important to remember, however, that if a business establishment has three workers one year and four the next, it is treated as a new entry in that year. (Conversely, a business establishment that goes from having three workers to four will be treated as having exited.)

(2) METI, Census of Commerce This survey provides statistics on numbers of business establishments.(3)METI,Basic Survey of Japanese Business Structure and Activities Asthissurveyonlycoversenterpriseswith50ormoreworkersandcapitalstockofatleast¥30million,theresults

do not cover small enterprises and sole proprietorships.(4) Ministry of Finance, Financial Statements Statistics of Corporations by Industry, Annually and Financial State-

ments Statistics of Corporations by Industry, Quarterly As these statistics do not include sole proprietorships, they do not reveal overall trends among small enterprises. In

consideration of the sample sizes and response rates, moreover, the results concerning small corporations need to be viewed with some latitude. It must also be remembered that the quarterly version does not include corporations with capital stock of less than ¥10 million.

(5) Ministry of Internal Affairs and Communications (MIC), Establishment and Enterprise Census of Japan This census contains statistics on both business establishments and enterprises. In this report, analyses using these

statistics based on enterprises also include sole proprietors (sole proprietorships). However, since it is not possible to integrate multinominal trade names and establishments, the size of sole proprietorships is determined based on the number of workers at its head office or principal place of business. For example, a manufacturing sole proprietorship with100workersatitsheadofficeand300workersatbranchofficeswouldthereforebetreatedasanSME.

4. This report includes analyses of the results of questionnaire surveys of SMEs and other respondents conducted by

Introductory notes

x

the SME Agency. However, as not all enterprises surveyed responded and the response rate appears to be higher the healthier a company is, the results probably paint a better picture than the reality. In addition, totals cited based on the results of these surveys do not always sum to 100% due to rounding to the first decimal place.

5. There are two problems with trying to determine the general situation in the SME sector using only mean values from statistical data on SMEs. These are as follows:(1) Unlike large enterprises, SMEs exhibit considerable variation. Mean values are not therefore always representative

of the typical SME.(2) Statistical data on SMEs may not be distributed symmetrically around the mean, but instead skewed leftwards. In

this report, therefore, median, top 25th percentile (first quartile) and bottom 25th percentile (third quartile) as well as mean values are used where necessary to provide a better picture of the typical SME.

6. The universities and institutes of the researchers whose findings (both on Japan and overseas) are cited in this report are those to which the researchers belonged when the results were published.

7. The word “significant” is used in this report to denote a figure considered to be sufficiently meaningful using statistical techniques. The smaller the percentage, the greater the degree of certainty.

Fiscal 2008 was a year in which the management environment deteriorated rapidly, further worsen-ing the situation for SMEs. The financial crisis triggered in the U.S. expanded to the whole world. The Japanese economy has experienced a sharp slowdown since the fall of 2008 due to a steep decline in exports and other factors. The impact of this slowdown has directly hit SMEs, and business conditions for SMEs are worsening further.

This chapter will analyze both the domestic and global economic and financial situations, and thus analyze the economic trends surrounding SMEs in fiscal 2008.

Chapter 1

The economic and financial situation surrounding SMEs in fiscal 2008

Section 1 Trends in the domestic and global economy in fiscal 2008

2

1. The global financial crisis and the slowdown in economic growth

Due to the global financial crisis, the global economy, which has continued to grow since 2001, is slowing down sharply. According to the IMF’s economic forecasts, real GDP (gross domestic product) growth in 2009 is expected to be negative for Japan, the United States and Europe, and stands at only 5.5% even for Asia (Fig. 1-1-1). What follows is a review of the background of the global financial crisis, as well as how it progressed.

The subprime mortgage crisis and securitized products

One of the main epicenters of the current globalfinancial crisis is the U.S. subprime mortgage problem. In the United States, the housing boom originally started around the year 2000. Mortgage loans were provided to low-income borrowers based on the assumption that the collateral value of housing would cover the low creditworthiness of the borrowers. This is how subprime mortgage loans expanded. However, house prices peaked

in 2006 and then started to fall. Thus, a majority of the subprime mortgage loans turned into non-performing loans (Fig. 1-1-2).

European and U.S. financial institutions had invested heavily in securitized products backed by these subprime mortgage loans, and therefore suffered huge losses when the prices of such securitized products fell. Also, the burst of the housing bubble occurred in countries other than the United States, such as the United Kingdom and Spain, which led to the turmoil in global financial markets.

Expansion into a global financial crisisSince the summer of 2007, issues such as the subprime

mortgage problem led to the turmoil in financial markets overall.ThefallofLehmanBrothers,amajorU.S.invest-ment bank, in September 2008 acted as the trigger for this turmoil to expand into a global financial crisis, causing a globalstockmarketdecline(Fig.1-1-3).Concernsaboutthe management of European and U.S. financial institu-tions increased, and financial institutions started to have doubts about each other’s financial status. This caused money to dry up and interest rates to rise in short-term


The subprime mortgage crisis which started in the summer of 2007 shook global financial and capital markets. The fall ofLehmanBrothers,amajorU.S.investmentbank,inthesummerof2008triggeredaglobalfinancialcrisiswhichledtoaglobal economic slowdown. Japan’s exports and production dropped sharply as a result. This section will discuss the global financial crisis, and then turn to domestic and global economic trends in fiscal 2008.

Fig. 1-1-1 Trends in real economic growth rates by country/regionWith the global-scale financial crisis, the world economy’s stable growth since 2001 has slowed down sharply

Source: IMF, World Economic Outlook Database for October 2008, World Economic Outlook Update January 2009.Note: Figures for 2001-2006 are from World Economic Outlook Database for October 2008. Figures for 2007 onward are from

World Economic Outlook Update January 2009.

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Chapter 1 The economic and financial situation surrounding SMEs in fiscal 2008

3

Section 1

money markets, and premiums rose sharply for credit default swaps (CDS)1) (Fig. 1-1-4).

On top of the concerns about the management ofEuropean and U.S. financial institutions and the turmoil in financial and capital markets, and due to the shrinkage

of the gap in interest rates between Japan and the Western economies, the yen appreciated sharply causing the yen-to-dollar rate to temporarily surpass ¥90 per dollar, after which it remained at high levels (Fig. 1-1-5).

Fig. 1-1-2 Trends in U.S. housing market pricesU.S. housing market prices have switched to a declining trend since the subprime mortgage crisis

Source: Standard & Poor’s.

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Fig. 1-1-3 Stock market trends in major countriesMajor countries saw sharp stock market drops since the Lehman Shock and have not recovered

Source: Bloomberg L.P.Note: Share prices are shown in weekly figures.

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Germany (DAX) China (HSI) India (SENSEX)

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1) A CDS (credit default swap) is a type of derivative where a payment is made in the case of a certain credit situation (default among others) previously agreed upon occurring. CDS transactions have been used mainly by financial institutions with the purpose of hedging risk, and the CDSbalanceis554.1billiondollars(asofJune2008)(Source:BankofJapan(BOJ),surveyresultsfromThe Regular Derivatives Market Statistics (August 2008)).


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Fig. 1-1-4 Global CDS premiums (Spreads above five-year government bonds)Since the Lehman Shock, funds have dried up, interest rates have risen in short-term financial markets and premiums have risen sharply for credit default swaps (CDS)

Source: Bloomberg L.P.Note: CDS premiums are shown in daily figures.

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Fig. 1-1-5 Foreign exchange rate trendsThe yen has been appreciating rapidly since the Lehman Shock

Source: Bloomberg L.P.Note: Exchange rates are shown in daily figures.

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5

Section 1

2. The worsening of economic conditions in Japan

Since February 2002, the Japanese economy had been continuing its moderate recovery for five and a half years, however, since November 2007, has shifted downward to a recessionary period.2) As outlined in Fig. 1-1-6, Japan’s real GDP growth, as well as the subsequent increase in capital expenditures, had been driven by an increase in exports, led by continuous growth in the global economy. Compared to economic recovery and expansion periods in the past, the growth of household sector income had been weak, leading to sluggish consumption demand, thus making exports the key driver of economic growth.

Under these circumstances, following the global financial crisis and the subsequent economic slowdown, external demand dropped sharply, causing production by export-oriented manufacturers to fall at an unprec-edented rate. Real GDP growth has been negative for three consecutive quarters from the periods of April-June to October-December of 2008. Growth was especiallyweakfor theperiodofOctober-December2008,falling3.2%fromthepreviousquarter,ofwhichthemajority(-3percentage points) can be attributed to the drop in exports (Fig. 1-1-6).

Sharp decline in exports and productionAccordingtotheMinistryofFinance’s(MOF)Trade

Statistics of Japan, Japan’s trade balance saw a deficit for the first time in 26 years in August 2008 (excluding January of each year). After turning back to a surplus in September, it has reverted to a deficit for four consecutive monthsstartingfromOctober(Fig.1-1-7).Exportssuchas cars to the U.S. and Europe have dropped precipitously, as well as exports to Asia and China, which turned nega-tive after 80 months and 41 months, respectively. Together with the impact from the rapid yen appreciation, export-oriented manufacturing industries such as the automobile industry are suffering from a sharp decline in production and worsening business results (Fig. 1-1-8). The Index of Industrial Production plunged, falling by a record 10.2% month-on-month in January 2009, (Fig. 1-1-9) and SMEs working as subcontractors faced extremely difficult cir-cumstances, including sharp drops and postponements of ordersreceived.Section3will takeacloser lookat theimpact of these subcontracting transactions on the overall business conditions surrounding SMEs.

Fig. 1-1-6 GDP growth rate and breakdown of contributions to growthThe real GDP growth rate has been negative for 3 consecutive quarters from the period of April-June to October-December 2008; the negative growth reached 3.2% quarter-on-quarter in October-December 2008, out of which net exports accounted for 3.0 percentage points

Source: Cabinet Office, Annual Report on National Accounts.Notes: 1. Real GDP estimates are in chained (2000) yen. 2. Due to rounding, contribution percentages of GDP components do not necessarily add up to the GDP growth rate.

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2) Reference Dates of Business Cycle, which represent the peaks and bottoms of economic cycles, are set based on discussions in the Working GroupofIndexesofBusinessConditionsmeetings,heldintheEconomicandSocialResearchInstitute,CabinetOffice.InthemeetingheldbytheWorkingGrouponJanuary29,2009,October2007wastentativelysetasthepeakoftheeconomicexpansionwhichstartedinFebruary2002. See Appended note 1-1-1.


6

3. The worsening of the employment picture

The rapid drop in production had an impact on employ-ment as well, and numerous non-regular workers had their contracts terminated by their employers, worsening the employment picture. The active opening rate and the unemployment rate had been on an improving trend overall since 2002 due to the recovery and expansion of

the economy. However, since the second half of 2007, the active opening rate has begun a decreasing trend, and the unemployment rate began an increasing trend. The situation has been worsening even more rapidly since the second half of 2008 (Fig. 1-1-10).

The termination of employment contracts for non-regular workers and others

A lot of attention was focused on the sharp increase

Fig. 1-1-8 Automobile (four-wheel vehicles and passenger cars) production and export trendsExport-oriented manufacturing industries such as the automobile industry are seeing a sharp decline in production

Source: Japan Automobile Manufacturers Association, Inc.

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Fig. 1-1-7 Trade balance trendsJapan’s trade balance saw a deficit in August 2008 for the first time in 26 years (excluding January); of each year after turning back to a surplus in September, a deficit continued for 4 consecutive months since October

Source: Ministry of Finance (MOF), Trade Statistics of Japan.Note: Import amounts are shown in negative figures.

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Section 1

Fig. 1-1-9 Index of Industrial Production trendsThe Index of Industrial Production saw a record monthly decline of 10.2% in January 2009

Source: Ministry of Economy, Trade and Industry (METI), Indices of Industrial Production.

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2

4

Index of Industrial Production (left scale) Monthly change (right scale)

-10.2%

09

(Year 2005 = 100) (%)

Fig. 1-1-10 Active opening rate and unemployment rateAfter continued improvement overall with the economic recovery beginning in 2002, the active opening rate has switched to a negative trend, and the unemployment rate began rising in the second half of 2007 and has been worsening rapidly since the second half of fiscal 2008

Sources: Ministry of Internal Affairs and Communications (MIC), Labor Force Survey; Ministry of Health, Labour and Welfare (MHLW), Report on Employment Service.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

98 99 00 01 02 03 04 05 06 07 083 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3

3.0

3.5

4.0

4.5

5.0

5.5

6.0(Times) (%)

(Year/month)

Active opening rate Unemployment rate (right scale)

09


8

in terminations of employment contracts for non-regular workers such as dispatch workers, especially within the manufacturing industry which was hit by the sharp decline in exports and production. To the extent that the Ministry of Health, Labour and Welfare (MHLW) wasaware as of March 19, 2009, there were 2,968 business establishments nationwide that either have conducted or are planning to conduct employment contract termina-tionsfornon-regularworkersbetweenOctober2008andJune 2009. The number of non-regular workers involved is 192,061, out of which 181,130 workers or 94% areattributable to the manufacturing industry (Fig. 1-1-11).

The number of withdrawals of tentative job offers to students also increased. To the extent that MHLW wasaware as of March 23, 2009, there were 404 businessestablishments and 1,845 students involved.

As outlined above, the employment picture worsened rapidly in fiscal 2008. Production adjustment is continu-ing towards the end of the fiscal year, and future trends in the employment picture need to be closely watched.

4. The soar and plunge of crude oil and raw material prices

Crude oil and raw material prices soared, especially from the second half of 2007, greatly impacting the Japa-nese economy including SMEs.

Fig. 1-1-12 shows the trend for benchmark WTI crude oil prices.3) There has been an upward trend since around

2004, and record-breaking high prices proceeded from the summer of 2007 onward. Various factors are thought to be behind this price hike, such as the increase in demand mainly from emerging markets such as China, the heightening of geopolitical risks such as the political instability in oil-producing countries, and the inflow of investment money from pension funds and speculative investment money from hedge funds. The WTI price accelerated its hike in 2008, and reached a record $145 per barrel in July 2008. However, since then, the WTI price switched to a downward trend due to the global financial crisis and economic slowdown, thus causing crudeoildemandtoslip.Afterdroppingsharplyto$30per barrel in December 2008, the WTI price has mainly remained in the range between $40 and $50 per barrel.

Fig.1-1-13shows theprice trendsformetalssuchassteel, aluminum and copper. Prices hiked throughout 2007 to 2008, but have come down to the pre-hike levels around the end of 2008.

The sharp price hikes of crude oil and raw materials have squeezed SMEs’ earnings. Fig. 1-1-14 shows the trends of the Raw materials purchasing prices diffusion index (DI), as well as the Unit prices DI for sales and customer spending, based on the data from the Survey on SME Business Conditions conducted by the Small and Medium Enterprise Agency (SME Agency) and the Organization for Small and Medium Enterprises andRegional Innovation, Japan (SMRJ). We can see that the Raw materials purchasing prices DI continued to rise until

Fig. 1-1-11 Contract terminations for non-regular workersThere is a sharp increase in terminations of employment contracts for non-regular workers such as dispatch workers in the manufacturing industry, which is facing a rapid decline in exports and production

(No. of workers)

Total Manufacturing Transportation Wholesale / Retail Other industries

Workers on dispatch

Contract expiry 58,723 56,625 274 115 1,709

Others (cancellation before maturity, etc.) 66,616 66,012 297 41 266

Total 125,339 122,637 571 156 1,975

Contract workers

Contract expiry 31,889 30,427 80 58 1,324

Others (termination of employment, etc.) 7,306 6,526 327 244 209

Total 39,195 36,953 407 302 1,533

Consign-ment

workers

Contract expiry 6,538 5,611 0 3 924

Others (cancellation before maturity, etc.) 9,018 8,099 39 0 880

Total 15,556 13,710 39 3 1,804

Other workers

Contract expiry 5,215 3,432 92 479 1,212

Others (termination of employment, etc.) 6,756 4,398 159 1,626 573

Total 11,971 7,830 251 2,105 1,785

Source: MHLW, The Situation on Contract Terminations of Non-regular Workers (March preliminary report).Notes: 1. Based on data available as of March 19 on employment adjustment through either contract expiry/cancellation before

maturity of dispatch and consignment contracts, or through the contract expiry/termination of fixed-term non-regular workers, either already conducted or scheduled to be conducted between October 2008 and June 2009.

2. “Others (cancellation before maturity, etc.)” and “Others (termination of employment, etc.)” include unclear or doubtful cases.

3) TheWTI(WestTexasIntermediate)isarepresentativeU.S.crudeoilbrandtradedontheNewYorkMercantileExchange.


9

Section 1

Fig. 1-1-12 Crude oil price trendsCrude oil prices had been surging since 2004, but peaked in July 2008 and dropped steeply

Source: METI.Note: Crude oil prices are shown in daily figures.

30

50

70

90

110

130

150

WTI Brent Nikkei Dubai(Dollars/barrel)

2007

1 2 3 4 5 6 7 8 9 10 11 12

2008

1 2 3 4 5 6 7 8 9 10 11 12

2009

1 2 3

(Year/month)

Fig. 1-1-13 Metal price trendsMetal prices began rising in 2004 and have been fluctuating greatly, but have been declining recently

Sources: Sangyo Shimbun, Statistics on Steel Supply and Demand; LME Monthly Statistics.Notes: 1. Metal prices are shown in monthly figures. 2. H-shaped steel prices are the bottom prices in the Tokyo market. Aluminum, copper, nickel and zinc are the average

LME prices.

0

100

200

300

400

500

600

700

3 6 9 12

03

3 6 9 12

04

3 6 9 12

05

3 6 9 12

06

3 6 9 12

07

3 6 9 12

08

3

09

H-shaped steel Aluminum Copper Nickel Zinc(January 2003 = 100)

(Year/month)

the period of July-September of 2008, and then switched toanegativetrendstartingfromtheperiodofOctober-December2008.Ontheotherhand,whiletheUnitpricesDI for sales and customer spending have also been rising, it has been happening to a lesser extent than that of the Raw materials purchasing prices DI, which means that SMEs have not been able to pass on the increase in raw

materials prices to the sales prices of their goods and ser-vices, hurting their earnings. A closer look will be taken at the impact of the crude oil and raw material price hikes inSection3.

Section 2 Trends among SMEs in fiscal 2008

10

Business confidenceAccording to the Bank of Japan’s (BOJ) National

Short-Term Economic Survey of Enterprises in Japan (hereinafter referred to as BOJ Tankan), the Business conditions DI for SMEs had continued to improve since bottoming out in the period of January-March 2002, with manufacturing leading the way. However, confidence has been deteriorating since entering into 2007 (Fig. 1-2-1).

Furthermore, the Survey on SME Business Conditions, which surveyed about 19,000 SMEs, including enterprises with capital of less than ¥20 million that were not covered by the BOJ Tankan, indicated that the SMEs’ Business conditions DI continued to decline for 12 consecutive

quarters, from April-June 2006 to January-March 2009. The Business conditions DI in the period of October-December 2008 had been the worst since revising the survey contents in 1994, until a new record was made in January-March 2009. In manufacturing, the Business conditions DI increased significantly due to export-driven economic expansion starting from January-March 2002, surpassing the non-manufacturing industries. However, due to the economic slowdown caused by a decrease in exports, the Manufacturing business conditions DI sud-denly declined in the second half of 2008, becoming lower than the Non-manufacturing business conditions DIintheperiodofOctober-December2008(Fig.1-2-2).


As observed in the previous section, crude oil and raw material prices hiked and plummeted in 2008, and the Japanese economy underwent a rapid downturn in response to the global financial crisis. These sudden changes in the domestic and global economies have further worsened business conditions for SMEs, putting them in an unprecedented state of stagnancy. This section will be looking at the business conditions for SMEs in fiscal 2008 by observing trends in SMEs’ business confidence, production/shipping/inventory, financing and bankruptcies.

Fig. 1-1-14 Trends in prices being passed on for SMEs Although Unit price DI for raw materials purchasing fell, unit prices for sales have also been weak, and the business environment for SMEs continues to be difficult

Source: SME Agency, Organization for Small and Medium Enterprises and Regional Innovation, Japan (SMRJ), Survey on SME Business Conditions.

Notes: 1. This inquiry is conducted on a quarterly basis through a questionnaire to a total of about 19,000 enterprises in Japan, and is conducted by management consultants from societies and chambers of commerce and industry nationwide and the staff of the National Federation of Small Business Associations.

2. Unit price DI for raw materials purchasing is calculated by subtracting the number of enterprises that replied that raw material unit prices “went down” compared to the same period a year before, from the number of enterprises that replied it “went up.” Similarly, Unit prices DI for sales and customer spending is calculated by subtracting the number of enterprises that replied that sales and customer spending unit prices “went down”, from the number of enterprises that replied it “went up.”

-100

-80

-60

-40

-20

0

20

40

60

80(DI) (Change from previous year)

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

I

09

(Year/quarter)

Unit price DI for raw materials purchasing

Unit prices DI for sales and customer spending

Unit prices DI for sales and customer spending minus Unit price DI for raw materials purchasing


11

Section 2

Fig. 1-2-1 Trends in the Business conditions DI of enterprises in JapanSME Business conditions DI bottomed out in the period of January-March 2002, and had been on an improving trend with the manufacturing industry as the key driver; however, it has been worsening since the beginning of 2007

Source: Bank of Japan (BOJ), National Short-Term Economic Survey of Enterprises in Japan (Tankan).Notes: 1. Survey was conducted among approximately 10,000 enterprises. 2. Business conditions DI is calculated by subtracting the percentage of enterprises that answered “unfavorable,” from

the percentage of enterprises that answered “favorable” when asked about their business conditions.

-75.0

-60.0

-45.0

-30.0

-15.0

0.0

15.0

30.0

45.0

IV I II III IV

00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

I

99 09

(DI)

(Year/quarter)

SMEs -47

Large enterprises -45

Large enterprises SMEs Manufacturing (SMEs) Non-manufacturing (SMEs)

Non-manufacturing (SMEs)

-42

Manufacturing (SMEs)

-57

Fig. 1-2-2 Trends in the Business conditions DI of SMEs in JapanDue to the decline in exports resulting from the global economic slowdown, as well as the impact of economic recession in Japan, the business sentiment for SMEs (including small enterprises) is worsening further

Source: SME Agency and SMRJ, Survey on SME Business Conditions.Notes: 1. Business conditions DI is calculated by subtracting the percentage of companies that answered “worsened,”

from the percentage of companies that answered “improved” when questioned about their business conditions in comparison with the previous quarter.

2. Quarterly change, seasonally-adjusted value.

Non-manufacturing -48.4

All industry -50.0

Manufacturing -55.0-60.0

-55.0

-50.0

-45.0

-40.0

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

IV I II III IV

99 00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

I

09

All industries Manufacturing Non-manufacturing(DI)

(Quarterly change, seasonally-adjusted value)

(Year/quarter)


12

Business confidence by industry and regionFig.1-2-3showsSMEbusinessconfidencebyindustry

in more detail. It can be seen from this chart that there were variances among different segments of the manufac-turing industry during the economic recovery and expan-sion period. Machinery-related segments such as general machinery, electrical machinery and transport equipment were robust, while textiles and textile products, and lum-ber and wood products were relatively weak. Business conditions for domestic consumption-oriented industries such as construction and retail were also relatively poor.

However, the rapid decrease in exports brought on by the stagnant global economy is causing machinery-related manufacturing industries to weaken rapidly. In addition, declining stock prices led by the global financial crisis, have worsened consumer sentiment. Consumers are spending less, and retail and shopping arcade businesses are facing even more difficulty than in the past. It can be said that all industries are slowing down and facing difficulty. When looking at the business confidence of SMEs per region, it can be seen that in the Kanto, Chubu and Kinki regions,4) which rely heavily on manufactur-ing sectors, business conditions were stronger than other areas until 2007. After the overall manufacturing industry weakened in fiscal 2008, the SME Business conditions DI of these three regions dropped to the same level as what

wasseeninotherregionsduringtheperiodofOctober-December 2008. The decline continued into the period of January-March 2009 (Fig. 1-2-4).

Production/Shipment/InventoryFig. 1-2-5 shows the production/shipment/inven-

tory trends for SME manufacturers based on data from Manufacturing Production Indices by Size of Enterprises 5) by the SME Agency. It is evident that SME production and shipments have been sharply declining since around the fall of 2008, and that SMEs are conducting large-scale produc-tion adjustments in reaction to the drop in sales and orders received. Inventory levels increased due to the rapid drop in production and shipments, but have been on a declining trend on a month-to-month basis since entering 2009, and inventory adjustments seem to be proceeding.

4) According to data recompiled from the Ministry of Internal Affairs and Communications’ (MIC) 2006 Establishment and Enterprise Census of Japan(October2006),theratioofmanufacturingSMEsoutofallSMEsineachregion(areascoveredbyeachoftheBureausofEconomy,TradeandIndustryandtheOkinawaGeneralBureau)isasfollows:Hokkaido5.2%,Tohoku7.7%,Kanto11.4%,Chubu15.3%,Kinki13.5%,Chugoku8.8%,Shikoku8.8%,Kyushu6.7%,OkinawaPrefecture4.7%.

5) This Index is calculated and released every month by the SME Agency, based on Ministry of Economy, Trade and Industry’s (METI) Indices of Industrial Production (IIP), with the purpose of understanding SME production trends.

Fig. 1-2-3 Business sentiment among SMEs by industryBusiness conditions are currently worsening for machinery and appliance manufacturing, which had been relatively robust until recently

Source: National Federation of Small Business Associations, Monthly Inquiry on SME Business Conditions.Note: From January 2003 to February 2009.

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

All industriesLumber and

wood products

Textile/textile products

(DI) (Change from previous year)

-89.3-82.4

-93.8 -92.8-89.2

-81.8

-92.6-84.3

-79.5 -82.4-76.9-76.4

Steel/metal products

General machinery

Transport equipment

Wholesale trade

Retail trade

Services

ConstructionShopping arcades

Electrical machinery


13

Section 2

Fig. 1-2-4 Trends in SME Business Conditions DI by regionSharp deterioration in SME business sentiment is seen in all regions

Source: SME Agency and SMRJ, Survey on SME Business Conditions.Notes: 1. July-September 2005 to January-March 2009. 2. Quarter-on-quarter seasonally-adjusted value. 3. Regions are zoned based on the prefectures within each Bureau of Economy, Trade and Industry. “Kanto” includes

Niigata, Nagano, Yamanashi and Shizuoka Pref., “Chubu” includes Ishikawa and Toyama Pref., “Kinki” includes Fukui Pref., and “Kyushu/Okinawa” includes the prefectures in Kyushu and Okinawa Pref.

-39.1

-52.5-51.0

-53.0 -51.6 -52.1

-46.1-46.5

-60.0

-55.0

-50.0

-45.0

-40.0

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0(DI) (Quarter-on-quarter seasonally-adjusted value)

Hokkaido Tohoku Kanto Chubu Kinki Chugoku Shikoku Kyushu/Okinawa

Fig. 1-2-5 Trends in Manufacturing Production Indices by Size of EnterprisesRecent SME production and shipments are dropping significantly

Source: SME Agency, Manufacturing Production Indices by Size of Enterprises.Note: Indices are calculated and released by the SME Agency monthly, based on METI’s Indices of Industrial Production (IIP),

for the purpose of following SME production trends. In the past, the SME Agency calculated and released the weighted average based on METI’s Census of Manufactures, using the index by product shown in the IIP released every month. However, since the figures of the revised report, of February 2009, the calculation and releasing method has changed to extracting only the SME data from METI’s Current Survey of Production, which contains primary statistical data in relation to IIP. The above chart is calculated using the new method, using primary statistical data included in the figures for the preliminary report of February 2009.

75

80

85

90

95

100

105

110

3 6 9 12

03

3 6 9 12

04

3 6 9 12

05

3 6 9 12

06

3 6 9 12

07

3 6 9 12

08

3

09

Production Shipments Inventory(Year 2005 = 100)

(Year/month)

(Seasonally-adjusted index)


14

Sales and Profit RatiosSMEs’ sales and ordinary profit had been growing

year-on-year during the economic recovery and expan-sion period since the beginning of 2002. However, sales started to show a year-on-year decline since the economy entered therecessionaryphase in2008.Ordinaryprofitgrew weaker in the first half of 2006, and then declined

further from the period of October-December 2007,whose ordinary profit is lower than the same period of the previous year (Fig. 1-2-6 [1] [2]). Fig. 1-2-7 [1] shows a breakdown of the year-on-year growth of SME ordinary profit in order to analyze the reasons for its drop. Accord-ing to this, we can see that ordinary profit increased year-on-year in 2007 with sales growth contributing

Fig. 1-2-6 [2] Ordinary profit trendsOrdinary profit for SMEs grew weaker in the first half of 2006, and then declined from the period of October-December 2007 compared with the same period of the previous year

Source: MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.Note: Enterprises with capital of ¥100 million or above are classified as large enterprises and enterprises with capital of ¥10

million or above but less than ¥100 million are classified as SMEs.

-80

-60

-40

-20

0

20

40

60

80

I II III IV

98

I II III IV

99

I II III IV

00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

Large enterprises SMEs(Change from previous year)

(Year/quarter)

Fig. 1-2-6 [1] Sales trendsSME sales have declined on a year-on-year basis since 2008 after entering the economic recession phase

Source: MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.Note: Enterprises with capital of ¥100 million or above are classified as large enterprises and enterprises with capital of

¥10 million or above but less than ¥100 million are classified as SMEs.

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

I II III IV

98

I II III IV

99

I II III IV

00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

Large enterprises SMEs(%) (Change from previous year)

(Year/quarter)


15

Section 2

Fig. 1-2-7 [2] Ordinary profit to sales ratio trends by business sizeThe ordinary profit to sales ratio for SMEs showed gradual improvement during the economic expansion, but started to decline around the end of 2005, and continues to decline in 2008

Source: MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.Notes: 1. Moving average of the past four periods. 2. Enterprises with capital of ¥100 million or above are classified as large enterprises and enterprises with capital of


0.0

1.0

2.0

3.0

4.0

5.0

6.0

I II III IV

1998

I II III IV

1999

I II III IV

2000

I II III IV

2001

I II III IV

2002

I II III IV

2003

I II III IV

2004

I II III IV

2005

I II III IV

2006

I II III IV

2007

I II III IV

2008

Large enterprises SMEs

(Year/quarter)

(%)

Fig. 1-2-7 [1] Breakdown of ordinary profit composition (year-on-year contribution)In the composition of SME ordinary profit growth, the decline in sales contributes to the decline in ordinary profits since the second quarter of 2008

Source: MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.Notes: 1. Moving average of the past four periods. 2. Enterprises with capital of ¥100 million or above are classified as large enterprises and enterprises with capital of


-80

-60

-40

-20

0

20

40

60

80

I II III IV04

I II III IV05

I II III IV06

I II III IV07

I II III IV08

(Year/quarter)

-80

-60

-40

-20

0

20

40

60

80 Sales componentLarge enterprises

SMEs

Variable costs component Personnel costs component

Other fixed costs component Ordinary profit (year-on-year)

(Year-on-year contribution, %)


16

while an increase in personnel costs had a negative effect. However, sales started to slump in 2008, and in the period of July-September, the decline in sales caused ordinary profit to drop. Based on this analysis, it can be said that the drop in SME ordinary profit has been caused by the decline in sales.

Under these circumstances, the ratio of ordinary profit to sales showed a gradual increase during the economic expansion and recovery period, but turned to a declining trend beginning around the end of 2005 and continued to worsen in 2008 (Fig. 1-2-7 [2]).

Financing SituationThe financing situation for SMEs worsened further in

fiscal 2008 (Fig. 1-2-8 [1]), impacted by crude oil and raw material price hikes as well as the decline in sales.

The financing situation had been improving through-out the economic recovery and expansion period since 2002, but since entering fiscal 2007, with crude oil and raw material price hikes putting downward pressure on earnings, the financing situation has been deteriorating. On top of this, amidst the rapid economic slowdown

since the fall of 2008, the financing situation for SMEs has worsened further, and their borrowing from financial institutions has become difficult (Fig. 1-2-8 [2]), and extremely difficult conditions have been continuing. Under these circumstances, the government has repeat-edly undertaken measures to facilitate the financing conditionsofSMEs.Section3willtakeamoredetailedlook at these financing issues.

Bankruptcy pictureWith SMEs’ sales decreasing and financing situations

worsening, the number of SME bankruptcies is on the rise, especially since the second half of fiscal 2008 (Fig. 1-2-9). When breaking down the number of bankruptcies by industry, the construction industry has the largest pro-portionatcloseto30%,andthishasincreasedinfiscal2008. Bankruptcies in the manufacturing industry have also increased since the second half of fiscal 2008, which seems to reflect the worsening business environment and financingsituations(Fig.1-2-3,1-2-5and1-2-8[1]).

Fig. 1-2-8 [1] Trends in SME financing DIThe financing situation for SMEs worsened further in fiscal 2008, impacted by crude oil and raw material price hikes as well as declining sales

Source: SME Agency and SMRJ, Survey on SME Business Conditions.Note: Financial position DI is calculated by subtracting the percentage of companies that answered “worsened,” from the

percentage of companies that answered “improved” when questioned about their financial position in comparison with the previous quarter.

-45.0

-40.0

-35.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

I II III IV

95

I II III IV

96

I II III IV

97

I II III IV

98

I II III IV

99

I II III IV

00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

I

09

All industries Manufacturing Non-manufacturing

Non-manufacturing

-34.9All industries

-36.6

Manufacturing -40.9

(DI)(Quarter-on-quarter

seasonally-adjusted value)

(Year/quarter)


17

Section 2

Fig. 1-2-9 SME bankruptcy trendsThe number of SME bankruptcies has been increasing recently

Source: Tokyo Shoko Research, Ltd., Business Failure News (Monthly).

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

3 6 9 12

02

3 6 9 12

03

3 6 9 12

04

3 6 9 12

05

3 6 9 12

06

3 6 9 12

07

3 6 9 12

08

3

09

-30

-20

-10

0

10

20

30

40(No. of companies) (%)

(Year/month)

Number of bankruptcies (left scale)Change from previous year (right scale)

Fig. 1-2-8 [2] Trends in the difficulty in borrowing DI of SMEsSince the fall of 2008, financing conditions for SMEs have worsened, making it more difficult to borrow from financial institutions, as the economy has worsened rapidly

Source: SME Agency and SMRJ, Survey on SME Business Conditions.Notes: Borrowing DI is calculated by subtracting the percentage of companies that answered “difficult,” from the percentage of

companies that answered “easy” when questioned about their ability to borrow from financial institutions in comparison with the previous quarter.

-19.8

-15.5

-19.0

-15.2

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

I II III IV

95

I II III IV

96

I II III IV

97

I II III IV

98

I II III IV

99

I II III IV

00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

I

09

Difficulty of long-term borrowing Difficulty of short-term borrowing(DI)

(Quarter-on-quarter seasonally-adjusted value)

(Year/quarter)


18

Capital expenditureCapital expenditure by SMEs has shrunk since enter-

ing fiscal 2007 (Fig. 1-2-10). There are several factors causing the SMEs to cut their capital expenditures, such as the decline in production by SMEs, causing a sharp rise in the sense of overcapacity, as well as the decline in SMEs’ sales, hurting their cash flow.6)

Employment picture Section 1 looked at how the employment picture

worsened for the whole of Japan. Here, the employment picture for SMEs will be discussed. Fig. 1-2-11 shows the employeeOvercapacityandinsufficiencyDItakenfromthe Survey on SME Business Conditions.

The DI has been showing net insufficiency (the number of enterprises that replied that there is overcapacity has been lower than those that replied that there is insuffi-ciency) since the period of July-September 2004, but since entering fiscal 2008, the amount of net insufficiency has shrunk with the DI switching to net overcapacity in the periodofOctober-December2008.Overcapacityhasbeen

felt even stronger in the period of January-March 2009.7)

When looking at this data by comparing the manufac-turing and non-manufacturing industries, the Employee overcapacity and insufficiency DI for the manufacturing industry turned to net overcapacity in the period of April-June 2008, and the extent of the net overcapacity has increased substantially in the period of January-March 2009. The non-manufacturing industries switched to net overcapacity in the period of January-March 2009, a little later than the manufacturing industry, and the extent of the net overcapacity is small compared to the manufac-turing industry. As seen earlier, SME manufacturers are facing a sharp decline in production due to factors such as the drop in exports, and there is a gap between the extent of net overcapacity in employment between the manufacturing and non-manufacturing industries.

Based on these observations, Section 3 will look atemployment trends for SMEs, as well as the current situ-ation and challenges which SMEs face in terms of hiring and training employees.

Fig. 1-2-10 Capital expenditure trendsSME capital expenditure has been decreasing since the beginning of fiscal 2007

Source: MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.Notes: 1. Capital expenditure excludes software (newly acquired fixed assets at the end of the period). 2. Enterprises with capital of ¥100 million or above are classified as large enterprises, and enterprises with capital of


-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

I II III IV

98

I II III IV

99

I II III IV

00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

Large enterprises SMEs(%) (Change from previous year)

(Year/quarter)

6) A high correlation can be observed between the growth rate in SME capital expenditure and cash flow growth (See Appended note 1-2-1).7) According to the Employment conditions DI in the Bank of Japan’s National Short-Term Economic Survey of Enterprises in Japan, the sense

of excess workers has risen for both large enterprises and SMEs (Fig. 1-2-11).


19

Section 3

1. Impact of export decline on SMEs

The previous section looked at how business condi-tions have been worsening for SMEs in the manufactur-ing industry (hereinafter referred to as “manufacturing SMEs”) during the global economic slowdown which hasbeencausingexportsfromJapantodrop(Fig.1-2-3).This section will more closely examine how the global economic slowdown impacted manufacturing SMEs that are involved in exporting.

(1) Impact on manufacturing SMEs involved in exporting

There are three ways in which manufacturing SMEs can be thought to be involved in exporting:[1] SMEs exporting goods by clearing customs proce-

dures under their own company name;[2] SMEs exporting through trading companies; and[3] SMEs delivering components or other materials to

manufacturers that export goods.

First is to look at the business conditions of manufac-turing SMEs that are involved in exporting through the above three ways (Fig.1-3-1). Business conditions forsuch manufacturing SMEs had been robust compared to manufacturing SMEs not involved in exporting, mainly due to the growth in Japan’s exports driven by the growth of the global economy since 2004. However, with the global economic slowdown, the Business condi-tions DI for manufacturing SMEs involved in exporting deteriorated rapidly since the period of July-September 2008, and became lower than the Business conditions DI for manufacturing SMEs not involved in exporting in the periodofOctober-December2008.

(2) Impact on subcontractorsThe current global economic slowdown had a sig-

nificant impact on major manufacturers who export large volumes. With major manufacturers cutting their produc-tion, their subcontractors were severely affected as well.

Here, business condition trends for subcontractors 8)

Fig. 1-2-11 Trends in the sense of overcapacity and insufficiency of employmentFor employee Overcapacity and insufficiency DI of SMEs, net insufficiency had been shrinking since the beginning of fiscal 2008, and turned to net overcapacity in the period of October-December 2008

Sources: BOJ, National Short-Term Economic Survey of Enterprises in Japan (Tankan); SME Agency and SMRJ, Survey on SME Business Conditions.

Note: DI = “excess employment” – “insufficient employment.”

-10

-5

0

5

10

15

20

25

I II III IV

98

I II III IV

99

I II III IV

00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

I

09

All industries

Manufacturing

Non-manufacturing

(Year/quarter)

Survey on SMEBusiness Conditions,

Employee overcapacityand insufficiency DI

-15

-10

-5

0

5

10

15

20

25

30

35 Large enterprises

SMEs

(DI)

BOJ TankanEmployment conditions DI

Section 3 Challenges SMEs are facingThe previous section took a bird’s eye view of SMEs’ business conditions in fiscal 2008. In this section, a more detailed

look will be taken at how the current global economic slowdown impacted SMEs’ businesses.

8) Subcontractors include companies which sell components and other items to export companies, as well as companies which sell to non-export companies. Here sentiment on business conditions for both groups of companies will be looked at.

Section 3 Challenges SMEs are facing

20

(Fig. 1-3-2) will be discussed. The Business conditionsDI for manufacturing SMEs which are involved in sub-contracted work had been deteriorating since 2007, saw a sharp decline in the second half of 2008, and is currently at a lower level than manufacturing SMEs that are not involved in subcontracted work.

The Bureaus of Economy, Trade and Industry visited

225 SMEs nationwide over the period of December 2008 to January 2009 to conduct interviews. There were many SMEs expressing concern over the large-scale reduction with orders “having fallen 70% in December and January compared with the same period of the previous year.”9)

Subcontractors facing a drop in orders received1-3-1The Bureaus of Economy, Trade and Industry

visited 225 SMEs nationwide over the period of December 2008 to January 2009 to conduct inter-views on SME business conditions. The following are some of the voices raised from SMEs.

Company A, which manufactures automobile components in Aichi Prefecture, saw its orders received drop sharply since the last week of Decem-ber last year, resulting in December and January’s orders received dropping by 70% year-on-year. The drop in exported products is severe, and especially exports to Europe have all but stopped.

Company B, an SME in Kanagawa Prefecture involved in the plating of electronic components,

said that orders from major manufacturers for com-ponent plating had decreased. The reason for the decrease was the decrease in major manufacturers’ production, which led them to shift their workers towards the in-house processing of components.

Company C, which manufactures water drain-age equipment in Saga Prefecture, said that ¥100 million to ¥200 million worth of orders had been postponed due to the deterioration of the mind-set of major manufacturer clients towards capital expenditure.(Source: SME Agency, The Emergency Expanded Bureau of Economy, Trade and Industry Director-General Meet-ing, February 2009)

Case

Fig. 1-3-1 Trends in the Business conditions DI of SME manufacturers based on involvement in exportingThe Business conditions DI of SME manufacturers involved in exporting, which had been robust until recently, has been deteriorating sharply since the period of July-September 2008 due to the global economic slowdown

Source: Recompiled from SME Agency and SMRJ, Survey on SME Business Conditions.Note: Business conditions DI is calculated by subtracting the percentage of companies that answered “worsened,” from the

percentage of companies that answered “improved” when questioned about their business conditions compared to the previous quarter.

-74.9

-66.9

-80.0

-70.0

-60.0

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

IV I II III IV

99 00

I II III IV

01

I II III IV

02

I II III IV

03

I II III IV

04

I II III IV

05

I II III IV

06

I II III IV

07

I II III IV

08

I

09

Involved in exporting Not involved(DI)

(Year/quarter)

9) SeeCase1-3-1fordetails.


21

Section 3

(3) SMEs that have business relations with export companies

Next will be to observe the impact of the global eco-nomic slowdown on SMEs that have business relations with export companies, through categories [2] and [3]out of the three ways outlined in (1), based on the Survey on the Business Environment and Management Status of SMEs,10) (hereinafter referred to as the Management Status Survey),conductedbyMizuhoResearchInstituteLtd.

Fig. 1-3-3 shows the resultsof a surveyofmanufac-turing SMEs that have business relations with export companies, requesting their outlook (as of December 2008) on how the overseas economic trends over the next 3yearsor so invarious regionswill impact their busi-nesses. Manufacturing SMEs that expected a negative impact (including “somewhat negative”) reached 84.1% for North America and 87.1% for Asia.

Next is to analyze the impact on manufacturing SMEs

Fig. 1-3-3 Impact of overseas economic trends on business results through transactions with export companies (SME manufacturers’ outlook for approximately the next 3 years)High ratio of replies expecting a negative impact of overseas economic trends on business results through transactions with export companies all over North America, Asia and Europe as well as other regions

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008).Note: Figures calculated for SME manufacturers that have transactions with export companies.

64.764.7

47.147.1

28.428.4

31.631.6

33.333.3

32.032.0

40.040.0

19.419.4

36.436.4

21.121.1

38.038.0

9.59.5

14.014.0

2.72.7

1.81.8

0.0

0.0

0.0

0.7

0.0

0% 20% 40% 60% 80% 100%

Others

Europe

Middle East

Asia

North America

Negative impact expected Somewhat negative impact expected Almost no impact expected

Somewhat positive impact expected Positive impact expected

44.444.4

30.430.4

1.61.6

1.11.1

1.61.6

Fig. 1-3-2 Trends in Business conditions DI of SME manufacturers based on involvement in subcontracted workBusiness conditions DI of SME manufacturers involved in subcontracted work, which had been on a declining trend since 2007, deteriorated sharply in the second half of 2008, and is currently worse than that of SME manufacturers not involved in subcontracted work

Source: Recompiled from SME Agency and SMRJ, Survey on SME Business Conditions.Notes: 1. Business conditions DI is calculated by subtracting the percentage of companies that answered “worsened,” from

the percentage of companies that answered “improved” when questioned about their business conditions compared to the previous quarter.

2. “Involvement” in subcontracted work refers to whether or not the SME receives work from another company as a subcontractor.

0.0

II III IV2005

I II III IV2006

I II III IV2007

I II III IV2008

I2009

(DI)

(Year/quarter)

(Change from previous year)

-10.0

-20.0

-30.0

-40.0

-50.0

-60.0

-70.0

-80.0

Involved in subcontracted work Not involved

-58.3

-70.8

10) SurveyconductedinDecember2008towards25,000SMEs.Responserateof18.3%.


22

that have transactions with export companies by breaking down the impact to transaction volume and transaction unitprice.Fig.1-3-4[1]showstheresultsofasurveyofmanufacturing SMEs that have transactions with export companies, asking the SMEs the current situation (as of December 2008), as well as their outlook on the future regarding orders received from export companies (transac-tionvolume).Accordingtotheseresults,80.3%ofmanu-facturing SMEs replied that transaction volume is currently decreasing, showing the difficult state they are in.

Fig.1-3-4[2]showstheresultsofasurveyconductedtowards manufacturing SMEs that engage in transactions with export companies, asking them about the current situation as well as their outlook on transaction unit prices. According to this chart, 28.4% of manufacturing SMEs replied that transaction unit prices were “lowered.” In terms of their outlook on the future, 54.9% of manu-facturing SMEs replied that it “will lower,” and it can be expected that more manufacturing SMEs will be requested by export companies to lower transaction unit prices.

The government is continuing its strict enforcement of theLawon thePreventionof theDelay in thePaymentof Subcontracting Charges and Related Matters (LawNo. 120, 1956), and has been taking measures to prevent unfair acts by parent companies. The establishment of subcontracting help centers in April 2008 has assisted subcontractors by providing thorough advice, and the numberofconsultationshasreached3,836fortheperiodof1April2008to31March2009.Asseenabove,moreexport companies are expected to request a reduction in transaction unit prices, and it is therefore necessary to continue implementing measures for fair and adequate subcontracting transactions.

(4) The relation between export amount and transaction amount for manufacturing SMEs

Fig.1-3-5shows theratioofexportsand theratioofspill-over production generated by exports from Japan out of total SME manufacturing production (SME Agency, Interindustry Relations Table by Enterprise Size (2005)). According to this, the ratio of indirect production gener-ated by exports is higher than that of actual exports by manufacturing SMEs. The ratio of indirect production is especially high in the transport equipment manufactur-ing industry. This data suggests that the global economic slowdown impacts manufacturing SMEs more through the decline in transactions with export companies than through the decrease in their own export amount.

(5) Impact of yen appreciationAs seen in Section 1, the yen has appreciated sharply,

driven by the expansion of the global financial crisis in the summer of 2008 (Fig. 1-1-5). What impact did this yen appreciation have on SMEs?

Fig.1-3-6analyzesthisimpactbasedontheManage-ment Status Survey. The largest component was “almost no impact” which reached 73.7%, but around 20% ofthe SMEs replied that there has been a negative impact (including “somewhat negative impact”), and the figure is higher for manufacturing compared to other industries.

Fig.1-3-7looksatthespecificnegativeimpactsofyenappreciation.Accordingtothis,44.3%ofSMEsreplied“decline in orders received,” implying that the yen appre-ciation, together with the global economic slowdown, caused production by export companies to decline, and that the impact is spreading to subcontractors. In addition to the drop in orders received, more than 20% of SMEs

Fig. 1-3-4 [1] Orders received from export companies (transaction volume)The total of SMEs replying “large decrease” and “decrease” reached approximately 80% for the present, and 86.5% for the future outlook

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008).

Note: Figures calculated for SME manufacturers that have transactions with export companies.

44.644.6 46.846.8

35.735.7 39.739.7

18.218.2 12.012.01.2 1.50.3 0.0

0%

20%

40%

60%

80%

100%

Future outlookPresent

Large decrease Decrease Almost no change

Increase Large increase

Fig. 1-3-4 [2] Transaction unit prices with export companiesAround 28% replied that current transaction unit prices have “lowered,” and about 55% (almost double) replied that they expect it to “lower”


Note: Figures calculated for SME manufacturers that have transactions with export companies.

0%

20%

40%

60%

80%

100%

Transaction unit prices have/will not change much

28.428.4

54.954.9

68.868.8

41.441.4

2.8 3.8

Future outlookPresent

Transaction unit prices lowered/will lower

Transaction unit prices went up/will go up


23

Section 3

listed “decline in exports” and “foreign exchange loss” as impacts of yen appreciation.

Ontheotherhand,thepositiveimpactsofyenapprecia-tion have been enjoyed mainly by the wholesale and retail tradeindustries(Fig.1-3-6),namelythroughthe“declineinrawmaterialandprocurementcosts”(Fig.1-3-8).

As seen above, the yen appreciation has not had a significant impact on SMEs due to the fact that a majority of SMEs provide products and services to meet domestic demand.Onthecontrary,theyenappreciationhashadapositive impact on some SMEs. However, for SMEs that are involved in exports, or have business relations with export companies, there has been a negative impact, and foreign exchange rate fluctuations and their impacts must be continually and carefully watched.

Fig. 1-3-5 Ratio of direct/indirect export-related production out of total manufacturing industry production (by enterprise size)The ratio of indirect production generated by exports is higher than that of actual exports by manufacturing SMEs, especially for the transport equipment manufacturing industry

Source: SME Agency, 2005 Interindustry Relations Table by Enterprise Size.

Note: “Direct export-related production” indicates the proportion of the amount of exports out of total production for each industry. “Indirect export-related production” is calculated by deducting the export amount from the production amount generated by Japan’s total exports, and then dividing the remainder by the total production from each industry.

24.924.9

12.212.2

34.734.7

13.213.2

16.616.6

14.114.1

18.118.1

38.938.9

0

10

20

30

40

50

60

(%)

Manufacturing(Large enterprises)

Manufacturing(SMEs)

Transportationequipment

(Large enterprises)

Transportationequipment (SMEs)

Direct export-related production

Indirect export-related production

41.541.5

26.4

52.852.8 52.052.0

Fig. 1-3-6 Impact of the appreciation of the yen against major currencies (by industry)Around 20% of SMEs suffered a negative impact (including “relatively negative impact”) from the yen’s appreciation

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008).Note: “Almost no impact” includes replies that there is “no foreign exchange impact” on business results, as well as replies to

the effect that although the company is involved in transactions through which foreign exchange could have an impact on business results, there was “almost no impact” from the yen appreciating against major currencies since the summer of 2008.

0.5 1.1

1.4

0.5

1.6

0.2

2.1

2.3

0.6

0.3

0.7

1.1

1.8

0% 20% 40% 60% 80% 100%

Construction

Manufacturing

Transport

Wholesaling/retailing

Eating anddrinking places,

accommodationsMedical,

healthcare,and welfare

Services

Others

All industries

Negative impact Relatively negative impact Almost no impact Relatively positive impact Positive impact

3.93.9 6.86.8

6.86.8

6.96.9

10.310.3

16.716.7

13.213.2

12.412.4

6.86.8

7.87.8

6.46.4

8.98.9 6.36.3

4.04.0

5.05.0

3.23.2

78.178.1

97.597.5

84.984.9

80.980.9

87.787.7

60.660.6

69.069.0

61.561.5

5.95.9

73.773.79.19.1

8.08.0

12.812.8

9.19.1

10.810.8

10.510.5


24

2. SMEs’ financing trends

Section 2 showed that the financing situation of SMEs was deteriorating due to slumping sales as well as increasing difficulty in obtaining loans from financial institutions.Fig.1-3-9showsthetrendinthebalanceof

loans from financial institutions to SMEs, and a continu-ous year-on-year decline can be observed since the second half of 2007.11)

To analyze the reasons for this decline, SMEs’ financ-ing demands as well as the lending activities by financial institutions will be looked at.

Minimizing foreign exchange risk, and responding quickly to orders from overseas clients1-3-2

Based in Ikoma City, Nara Prefecture, with a workforce of 220 and capital of ¥70 million, MST Corporation develops, manufactures and sells toolings (tool holders) equipment and accessories. Toolings are used when processing metals to fix cutting tools such as drills onto machine tools, and a strong grip, as well as accuracy and durability, are required. MST has the top share of domestic and global markets with its “thermal insertion method” toolings, where the tips of toolings are thermally expanded before having cutting tools inserted in them, and then cooling the tips to shrink them and fix the cutting tools firmly.

MST’s products are regarded as crucial to preci-sion processing. MST receives many inquiries from overseas, and exports its products to various regions around the globe. The direct impact of the recent yen appreciation (in terms of foreign exchange loss

for MST’s exports) is limited since MST’s overseas transactions are based in yen (except for Europe) though it is impacting MST’s cost competitiveness. In order to overcome this negative impact, MST, which does not have manufacturing facilities over-seas, is using its partners’ facilities to set up inven-tory warehouses in Chicago in the United States, Nürnberg in Germany, Singapore and Hong Kong, thereby making it possible to respond quickly to orders from local clients. The inventory warehouses also help MST by allowing it to maintain a certain inventory level in each region, thereby minimizing the impact from foreign exchange volatility.

MST has plans to set up an inventory warehouse in Shanghai, China, and is working to aggressively expand overseas while maintaining a balance between cost competitiveness and quick response to client needs.

Case

11) Ontheotherhand,thebalanceofloanstolargeenterprisesgrewonayear-on-yearbasisinSeptember2008.Largeenterpriseshavebeenraising funds through direct financing, but with corporate bond and CP issuance becoming more difficult due to the credit squeeze caused by financial market turmoil, the need to borrow from financial institutions is considered to be on the rise.

Fig. 1-3-7 Negative impact of the yen appreciating against major currencies (summer of 2008 onwards)The largest number of companies (around 44%) reported a “decline in orders received,” while around 24% reported a “decline in exports” and “foreign exchange loss”


Notes: 1. Based on replies that the yen appreciating against major currencies since the summer of 2008 had a “negative impact” and a “relatively negative impact.”

2. Due to multiple responses, the total exceeds 100.

24.7 24.3

7.8 9.6

44.3

12.2

0

10

20

30

40

50

Decli

ne in

exp

orts

Fore

ign

exc

hang

e los

s

Chan

ge in

con

tract

term

sCo

mpe

tition

aga

inst

impo

rted

good

s

Decli

ne in

ord

ers r

eceiv

ed

Othe

rs

(%)

Fig. 1-3-8 Positive impact of the yen appreciating against major currencies (summer of 2008 onwards)The largest number of SMEs (79.5%) listed “decline in raw material and procurement costs” as a positive impact of yen appreciation


Notes: 1. Based on replies that the yen appreciating against major currencies since the summer of 2008 had a “positive impact” and a “relatively positive impact.”


(%)

0.7

23.0

0.7

79.5

0.7 1.80

20

40

60

80

Incr

ease

in e

xpor

ts

Fore

ign

exc

hang

e ga

in

Chan

ge in

con

tract

term

sDe

cline

in ra

w m

ater

ial

and

pro

cure

men

t c

osts

Expa

nsion

of

fore

ign

inve

stm

ent

Othe

rs


25

Section 3

(1) Increase in demand for working capitalFig.1-3-10[1]showsthechangesinSMEborrowing

amounts. As of the end of August 2008, when the survey was conducted, many SMEs had increased their borrowing

comparedto3monthspriortocovertheirworkingcapitalneeds while lowering their borrowing to cover capital expenditure. Meanwhile, financial institutions have felt the increase in financing demand from SMEs, and when

Fig. 1-3-9 Trends in SME loan balance by financial institutionsSME loan balance by financial institutions decreased overall between the 1990’s and early 2000’s, increased year-on-year in 2006, and has, again, been decreasing since the second half of 2007

Source: Compiled by the SME Agency from sources including BOJ, Financial and Economic Statistics Monthly.

240

260

280

300

320

340

360

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

98 99 00 01 02 03 04 05 06 07 08

(Year/quarter)

(¥1 trillion)

-12

-10

-8

-6

-4

-2

0

2

4

6(%)

Real value (left scale) Change from previous year (right scale)

Fig. 1-3-10 [1] Changes in SME borrowingSMEs are reducing their borrowing to cover capital expenditures, and increasing borrowing to cover working capital needs

Source: Survey of the Financial Environment of Small and Medium Enterprises (October 2008), National Federation of Small Business Associations.

Note: Survey was conducted in the end of August. SMEs replied based on changes compared to 3 months prior.

Increase

Percentage (%)

No Change

Decline

Collateral value

Increase/decrease in borrowing to cover working capital needs

Increase/decrease in borrowingto cover capital expenditure

0.7

28.428.4

59.759.7

11.911.9

68.768.768.268.2

26.226.2

5.65.6

30.630.6


26

asked the reasons, raised the deterioration in SME financ-ing situations, as well as SMEs wanting to increase their cash-on-hand(Fig.1-3-10[2]).

It can be ascertained from this data that while SMEs’ demand for capital expenditure is declining, the fact that SMEs want to increase their cash-on-hand, due to the deterioration in financing situations from slumping sales as well as their concerns about the future, has had a posi-tive impact on financing demand.

Fig. 1-3-10 [1] shows that the number of companiesthat replied that collateral value is decreasing reached approximately30%,andthisdeclineincollateralvalue,caused mainly by the decline in real estate prices, raises concerns.AccordingtoFig.1-3-11,therepaymentperiodof liability with interest (calculated by dividing liability with interest by annual cash flow) for SMEs has increased due to the decrease in cash flow, reaching 11.9 years in theperiodofOctober-December2008.Theriskthattheincreasing debt burden may further worsen the financing situations for SMEs should be carefully monitored.

(2) Lending attitude of financial institutionsHow have financial institutions responded to the

increase in SME demand for borrowing to cover working capital needs? Section 2 showed that the Borrowing dif-ficulty DI is continuing to decrease. Here, a more detailed look, based on the Management Status Survey and Tokyo Shoko Research, Ltd.’s Survey on Lending Situation by Financial Institutions 12) (hereinafter referred to as Survey of Financial Institutions) will be taken.

In terms of the financial institutions’ attitude towards providingnewloans,morethan30%ofSMEshavefeltthat the financial institutions’ attitude has turned negative compared to a year ago, leaving a large discrepancy with the view of financial institutions, who have replied that theirattitudehasturnedpositive(Fig.1-3-12).Asimilarsituation can be seen in terms of changes in lending terms and conditions, where approximately 70% of financial institutions replied that they are becoming more positive, while only around 10% of SMEs replied that financial institutions were becoming more positive.

Fig. 1-3-10 [2] Changes in SME financing demand and reasons (from the financial institutions’ perspective)Financial institutions also feel that SME financing demand is increasing, and when asked for reasons why, mentioned the deterioration in SME financing situations, as well as SMEs wanting to increase their cash-on-hand

Changes in DI for loan demand

DI for loan demand (percentage points) (Previous survey in October 2008)

Large firms 50 4

Medium-sized firms 16 -3

Small firms 24 -10

Factors for increase/decrease in financing demand

Large firms Medium-sized firms Small firms

Average Average Average

Customers’ sales increased 1.00 1.00 1.00

Customers’ fixed investment increased 1.05 1.13 1.00

Customers’ funding from other sources became difficult to obtain 1.55 2.13 2.45

Customers’ internally-generated funds decreased 2.34 2.20 1.95

Customers’ borrowing shifted from other sources to your bank 2.71 1.60 1.27

Decline in interest rates 1.18 1.20 1.14

Other factors 1.05 1.00 1.14

No. of banks responding 38 15 22

Source: Bank of Japan, Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks (April 2009).Notes: 1. DI for loan demand = (percentage of respondents selecting “substantially stronger” + percentage of respondents

selecting “moderately stronger” × 0.5) – (percentage of respondents selecting “substantially weaker” + percentage of respondents selecting “moderately weaker” × 0.5).

2. Set an “assessment scale” of 3 for “important,” 2 for “somewhat important” and 1 for “not important.” “Average” is calculated by multiplying the share of respondents selecting each option by the scale of each option, then adding up the result (weighted average).

12) SurveyconductedinDecember2008with603financialinstitutionsparticipating.Responserateof67.2%.


27

Section 3

Fig. 1-3-11 Trend in the repayment period of interest-bearing debt and breakdown of contributionsThe repayment period of interest-bearing debt for SMEs has extended due to the decrease in cash flow

Source: MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.Notes: 1. Interest-bearing debt repayment period calculated using moving average of the past 4 quarters. 2. Cash flow = ordinary profits × 0.5 + depreciation costs 3. SMEs referred to here include enterprises with capital of ¥10 million or more and less than ¥100 million.

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0Increase in interest-bearing debt (change from previous year) Decrease in cash flow (change from previous year)

Interest-bearing debt repayment period (change from previous year)

(%)

I II III IV2004

I II III IV2005

I II III IV2006

I II III IV2007

I II III IV2008

9.0

10.0

11.0

11.912.0

13.0

(Year)Interest-bearing debt repayment period

(Year/quarter)

Fig. 1-3-12 Changes in lending attitudes of financial institutions (compared to one year prior)A large discrepancy can be seen between the financial institutions’ view and SMEs’ view regarding the changes in lending attitudes for both new loans as well as changes in terms and conditions

Sources: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008); Tokyo Shoko Research, Ltd., Survey on Lending Situation by Financial Institutions (December 2008).

3.83.8

17.017.0

6.56.5

23.923.9

12.512.5

53.853.8

14.214.2

38.638.6

62.862.8

28.228.2

43.443.4

35.335.3

10.210.2

17.617.6

2.3

10.710.7

18.418.4

1.0

0.0

0.0

0% 20% 40% 60% 80% 100%

Replies from SMEs(%)

Replies from financial institutions

(%)

Replies from SMEs(%)

Replies fromfinancial institutions

(%)

Becoming more positive Becoming relatively more positive Almost no change

Becoming relatively more negative Becoming more negative

Prov

idin

g ne

w lo

ans

Chan

ges

in te

rms

and

cond

ition

s


28

Many SMEs that replied that financial institutions have become more negative in their lending attitude feel this is due to the tightening of loan screening and other “qualitative” aspects, rather than the “quantitative” aspect suchasloanamount(Fig.1-3-13).

(3) Reasons for the decline in the loan balanceThe reasons behind the decline in the loan balance to

SMEs can be attributed both to the financial institutions’ side as well as the SMEs’ side. For example, one possible reason is that the management environment for financial

institutions is deteriorating due to the slowdown in the economy as well as the worsening of companies’ business results, causing the financial institutions to become more cautious in their lending, which leads to a decline in the loanvalue.Ontheotherhand,theoveralldeteriorationofthe financial conditions of companies could be leading to the inability of companies to meet the financial institu-tions’ credit requirements, thus leading to the decline in the loan value as a result.

While some SMEs replied that the reason for the finan-cial institutions’ lending attitude becoming stricter was due to “management issues on the financial institutions’ side,” many SMEs replied that the reason was attributable either to the “worsening of business environments of the industry that the company belongs to,” or the “worsening ofbusinessresultsofthecompanyitself”(Fig.1-3-14).

Ontheotherhand,whilemoreSMEswithimprovingprofit margins tended to reply that the financial institu-tions’ lending attitude was positive, a certain number of SMEs with improving profit margins replied that the lend-ing attitude was turning negative. This shows that some SMEs are feeling that the improvement in the companies’ business results is not leading to an improvement in the lendingattitudeoffinancialinstitutions(Fig.1-3-15).

The non-performing loan ratio for financial institu-tions nationwide increased slightly in the term ending September 2008 compared to the term ending March 2008, with the economy turning to a recessionary phase (Fig.1-3-16),andmorecaseswherefinancialinstitutionsbook write-down losses from appreciation of securities. Depending on the non-performing loan trends going forward, financial institutions may further tighten their lending attitude, leaving the possibility that SME financ-ing conditions may worsen even further.

Considering this possibility, SME financing trends must be carefully watched.

Fig. 1-3-14 Reasons for the changes in lending attitude of financial institutions (SMEs’ view)More SMEs replied that their reasons were either the “worsening of the business environment of the industry that the company belongs to,” or the “worsening of business results of the company itself,” compared to “management issues on the financial institutions’ side”

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008).Notes: 1. Based on replies by SMEs that the lending attitudes of financial institutions were “becoming more negative” and

“becoming relatively more negative.” 2. Due to multiple responses, the total exceeds 100.

43.850.6 46.4

14.23.6

0

20

40

60

Man

agem

ent i

ssue

s

on

the

finan

cial

inst

itutio

ns’ s

ide

Wor

senin

g of

the

busin

ess e

nviro

nmen

t

of th

e ind

ustry

that

the c

ompa

nybe

longs

to

Wor

seni

ng o

f

busin

ess r

esul

ts o

f

the

com

pany

itse

lf

Deva

luat

ion o

f

asse

ts o

wned

by th

e co

mpa

ny o

r

by th

e m

anag

emen

t Othe

rs

(%)

Fig. 1-3-13 How the lending attitudes of financial institutions have changed (SMEs’ views)68% of SMEs that replied that the lending attitudes were becoming negative pointed out the “tightening of lending standards”

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008)

Notes: 1. Based on replies by SMEs that the lending attitudes of financial institutions were “becoming more negative” and “becoming relatively more negative.”


30.8 26.5

68.0

10.6 8.5 7.1

25.3

5.00

20

40

60

80

Loan

am

ount

redu

ction

Refu

sal o

f loa

nTi

ghte

ning

of

cre

dit r

equi

rem

ents

Requ

est f

or

add

ition

al co

llate

ral

Requ

est f

or

add

ition

al gu

aran

tors

Requ

est f

or

shor

teni

ng lo

an te

rmRe

view

of in

tere

st ra

te

Othe

rs

(%)


29

Section 3

Fig. 1-3-15 Relation between SME business results and changes in the lending attitude for new loans by financial institutions (SMEs’ view)Even for SMEs with improving profit margins, a certain number replied that the lending attitude of financial institutions is becoming more negative

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008).Note: SME business results have been classified based on the ordinary profit ratio for the past 3 years.

0% 20% 40% 60% 80% 100%

Large recovery

Slight recovery

No change

Slight deterioration

Large deterioration

SME business results

Lending attitude for new loans by financial institutions

Becoming more positive Becoming relatively more positive Almost no change

Becoming relatively more negative Becoming more negative

14.0%14.0%

15.5%15.5%

21.2%21.2%

19.3%19.3%

7.9%7.9%

11.3%11.3%

13.2%13.2%

17.6%17.6%

35.1%35.1%

19.8%19.8%

11.3%11.3%

15.9%15.9%

15.7%15.7%

12.6%12.6%

10.2%10.2%

46.0%46.0%

45.9%45.9%

49.4%49.4%

44.1%44.1%

31.4%31.4%

10.3%10.3%

6.2%6.2%

4.5%4.5%

4.0%4.0%

17.6%17.6%

Fig. 1-3-16 Trend in non-performing loan ratioThe non-performing loan ratio increased slightly for banks nationwide in the term ending September 2008 compared to the term ending March 2008 due to the economy turning to a recessionary phase

Source: Recompilation of Financial Services Agency, Situation Regarding Non-performing Loans.Notes: 1. Figures for major banks are the total of city banks and trust banks, and also includes the figures for the former

Industrial Bank of Japan, Ltd. 2. Non-performing loan ratio = claims disclosed under the Financial Revitalization Law / total loan balance.

0

2

4

6

8

10

12

14

16

18

Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep.

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

(%)

(Year/month)

Total for banks nationwide Major banks Regional banks

Second-tier regional banks Credit associations Credit cooperatives


30

(4) SME financing-related measuresWhen asked about their countermeasures against

deterioratingfinancingconditions,closeto30%ofSMEsreplied that they will make use of the measures by the government and local authorities to support SMEs, fol-lowing the reply that they will restructure their business throughcostcuttingandothermeasures(Fig.1-3-17).

Based on this situation, the government has put in place measures to facilitate SME financing based on the “Emergency Comprehensive Measures for a Sense of Security” it announced on 29 August 2008, as well as the CountermeasurestoProtectEverydayLifeannouncedon30October2008.Thenecessaryamountswerebudgetedin thefirstandsecondsupplementarybudgets,and¥30trillion in SME financing-related measures were com-piled.Oneof themeasures is theemergencyguaranteeprogram by the Credit Guarantee Corporations, estab-lished on 31 October 2008, which provided guaranteesof¥9.181trillionby31March2009,withthenumberofguaranteeacceptancesreaching435,043.Ontopofthis,government-affiliated SME financial institutions have expanded safety net lending, and lending by Japan Finance Corporation(JFC)duringtheperiodof1October2008to31March2009reached¥1.3828trillion,or96,922loans(Fig.1-3-18).Anothermeasureisthepassingandenforce-ment (as of 17 December 2008) of the amendment to the Act on Strengthening Financial Functions in the Diet,13)

with the aim of strengthening the financial intermediary functions of financial institutions through capital partici-pation by the government, as well as the amendment to

the supervision guidelines towards financial institutions and the Supplementary “SME Lending” Section of the Financial Inspection Manual, with the aim of facilitating the loosening of lending conditions of SME loans. The government also implemented various measures to facili-tate SME financing, such as making requests to financial institutions to strive to provide financing to SMEs.

(5) Use of the emergency guarantee programWhich SMEs are actually using the emergency guaran-

tee program by the Credit Guarantee Corporations? Fig. 1-3-19showstheindustriesinwhichtheSMEsthatusedthe emergency guarantee program belong to. According to this data, the construction and manufacturing indus-triesmakeup27.3%and21.0%,respectively,whicharehigher than the percentages reflecting the sizes of these industries among all SMEs, which is 11.7% and 10.9%, respectively. This shows that the emergency guarantee program is being used heavily among industries which are facing difficult business conditions.

Fig.1-3-20 tracks thequarterlyadditionalborrowingtrends of SMEs that have loan balances guaranteed by Credit Guarantee Corporations. According to this data, 48.0% of SMEs replied that they borrowed additional fundsduringtheperiodofOctober-December2008,whichis significantly higher than the period of July-September 2008. The data also classifies SMEs by the number of employees, namely SMEs with 20 or less employees, and SMEs with more than 20 employees. Based on this classification, it can be seen that the ratio increased

13) TheofficialnameofthislawfollowingtheamendmentistheActonSpecialMeasuresforStrengtheningFinancialFunctions(LawNo.128, 2004).

Fig. 1-3-17 Countermeasures against the change in lending attitude of financial institutionsMany SMEs mentioned restructuring measures such as “cost-cutting through restructuring,” “holding back investments” and “downsizing business”

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008).Notes: 1. Based on replies by SMEs that the lending attitudes of financial institutions were “becoming more negative” and

“becoming relatively more negative.” 2. Due to multiple responses, the total exceeds 100.

24.4

15.5

25.5

15.2

4.6 3.2

24.6

50.3

10.616.4

27.2

6.7

0

10

20

30

40

50

60

Down

sizin

g bu

sines

s

Sellin

g as

sets

own

ed

Cont

inui

ng to

requ

est e

xistin

g

finan

cial in

stitu

tions

for l

oans

Findi

ng n

ew

fina

ncial

inst

itutio

nsRe

ques

ting

addi

tiona

l

equ

ity to

exis

ting

equ

ity in

vest

ors

Findi

ng n

ew

equ

ity in

vest

ors

Hold

ing

back

inve

stm

ents

Cost

-cut

ting

thro

ugh

rest

ruct

urin

g

Exte

ndin

g p

rocu

rem

ent

paym

ents

Shor

teni

ng a

ccou

nts

rece

ivabl

e co

llect

ions

Usin

g SM

E su

ppor

t

mea

sure

s by

gov

ernm

ent a

nd

loca

l aut

horit

ies Othe

rs

(%)


31

Section 3

Fig. 1-3-18 Implementation status of financing-related measures for SMEs and small enterprises

Source: SME Agency.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000(¥100 million)

Trends in emergency guarantee acceptances (31 October 2008 to 31 March 2009)

0

500

1,000

1,500

2,000

2,500

3,000

(Number of acceptances)

Amount (right scale)

No. of acceptances (left scale)

Oct.31

Cumulative amount 435,043 acceptances ¥9.181 trillion Safety net lending

(businesses by individuals and SMEs) (preliminary figures)

No. of loans: 96,922Amount: ¥1,382.8 billion

Cumulative loan amount between 1 October 2008 to 31 March 2009

MarchFebruaryJanuaryDecemberNovember

Fig. 1-3-19 Composition of industries using the emergency guarantee program (based on number of acceptances made by the end of January)The emergency guarantee program is being actively used by companies in industries such as construction and manufacturing which are facing especially difficult business conditions

Source: Recompiled from the National Federation of Credit Guarantee Corporations, MIC, Establishment and Enterprise Census of Japan 2006.

Total no. of SMEs in

the industry

No. of acceptances

0% 20% 40% 60% 80% 100%

(%)

27.327.3

Construction Manufacturing Transport Wholesale trade Retail trade

Real estate Eating and drinking places, accommodations Services Others

21.021.0 4.44.4 15.215.2 13.613.6 3.43.4 4.84.8 8.08.0 2.32.3

8.98.918.118.115.415.420.920.910.910.911.711.7 6.86.85.55.51.81.8


32

significantly even for SMEs with 20 or less employees. Keeping in mind that the emergency guarantee program startedon31October2008, it canbeassumed that thenumber of enterprises that borrowed anew using the pro-gram increased, and the impact of the program spread to small enterprises as well.

As seen above, the emergency guarantee program was actively used, and is helping to facilitate SME financing. However, continuous aggressive support is necessary to support the financing situation of SMEs, taking into con-sideration the fact that the difficulty of the management environment surrounding SMEs is unprecedented.

3. Impact of crude oil and raw material price spikes

Section 1 demonstrated the impact of crude oil and raw material price volatility on the unit prices of SME

raw material procurement and other areas. This section will reveal how the price volatility impacted SME earn-ings for crude oil and other raw materials separately.

(1) Impact of crude oil and raw material price hikes on SME earnings

Fig. 1-3-21 shows the impact of crude oil and rawmaterial price hikes on SME earnings based on two surveys conducted in January and December 2008. As of January 2008, SMEs that experienced large or moderate negative pressure on their earnings due to crude oil and raw material price hikes were 88.1% and 77.8%, respec-tively. Due to the following price decline, the number of SMEs experiencing negative pressure from crude oil and raw material prices decreased slightly, especially for crude oil prices, for which the ratio dropped to 78.8% as of December 2008.

Fig. 1-3-22 shows whether SMEs have been able to

Financing situation deteriorating for SMEs1-3-3

According to the survey conducted by the Bureaus of Economy, Trade and Industry mentioned in Case 1-3-1, SMEs made the following comments about their financing situations.

Company D, an SME in Saitama Prefecture that manufactures metal products, made a large capital investment a year ago, but its orders received have dropped significantly since then making it difficult for the company to repay its loans, and the com-pany used the emergency guarantee program.

Company E, an SME in Miyagi Prefecture involved

in the retail trade of books and magazines, felt that the number of documents requested by banks has increased compared to the past due to the deterio-ration of its business results.

Company F, an SME in Kagawa Prefecture which manufactures furniture, borrowed additional funds based on advice from its bank that it should secure surplus funds to prepare for the future.(Source: SME Agency, The Emergency Expanded Bureaus of Economy, Trade and Industry Directors-General Meet-ing, February 2009)

Case

Fig. 1-3-20 Ratio of borrowing companies which have guarantees by Credit Guarantee CorporationsRatio of borrowing companies showed a recent increase

Source: Japan Finance Corporation, Survey on Financial Status of SMEs with Guarantees (January 2009).

0

10

20

30

40

50

60

7061.4

48.0

45.5

(%)

(Year/quarter)

II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

99 00 01 02 03 04 05 06 07 08

Ratio of borrowing companies 0-20 employees 21 or more


33

Section 3

Fig. 1-3-21 Impact of crude oil and raw material price hikes on earningsAs of December 2008, the impact on earnings has eased compared to January 2008

Sources: Mizuho Research Institute Ltd., Survey of Effects of Crude Oil and Raw Material Price Hikes on SMEs’ Business Condition (January 2008); Survey on the Business Environment and Management Status of SMEs (December 2008).

36.936.9

51.251.2

0

20

40

60

80

100(%)

Survey as of January 2008 Survey as of December 2008 Survey as of January 2008 Survey as of December 2008

Impact of raw material price hikesImpact of crude oil price hikes

48.848.8

21.121.1

30.030.0

11.911.922.222.2

50.050.0

27.827.823.223.2

53.853.8

23.023.0

Large pressure on profit Moderate pressure on profit Hardly any effect on profit

Fig. 1-3-22 To what extent the price hikes of crude oil and raw material are passed on to the product pricesGradual progress in passing on price increases can be seen, but approximately half of SMEs replied that they have not been able to pass on any price increases

Sources: Mizuho Research Institute Ltd., Survey of Effects of Crude Oil and Raw Material Price Hikes on SMEs’ Business Condition (January 2008); Survey on the Business Environment and Management Status of SMEs (December 2008).

62.162.155.555.5 56.056.0

49.649.6

28.628.633.533.5 30.730.7

37.737.7

3.83.8 3.83.8 4.14.1 3.63.62.5 4.04.01.1 2.2 1.8 2.7

1.9 2.1 3.4 3.2

0

20

40

60

80

100

Survey as of January 2008 Survey as of December 2008 Survey as of January 2008 Survey as of December 2008

0% 1-20% 21-40% 41- 60% 61-80% 81-100%

3.0 3.1

Crude oil price hikes Raw material price hikes

(%)


34

pass crude oil and raw material price increases on to the prices of their products and services. According to this data, the ratio of SMEs that accomplished “0%,” or SMEs that could not pass on any price hikes, decreased from January 2008 to December 2008. However, the ratio of SMEs that replied “1-20%” is increasing. Therefore it is conceivable that SMEs were able to pass on a portion of the cost increase, but circumstances did not allow any more. Crude oil and raw material prices declined in the second half of 2008, but the downward pressure on product/service prices due to the decline in both domestic and overseas demand has been increasing. Business con-ditions remained difficult for SMEs that had difficulty in passing the price hikes on to the product prices.

(2) SMEs’ initiatives on energy savingWith the current crude oil price hike, what initiatives

have SMEs been pursuing in relation to energy saving? Fig.1-3-23showssomeoftheinitiativestakenbySMEsin relation to energy saving based on a survey conducted in August 2008, when gasoline and heavy oil prices were still increasing. According to this data, 84% of SMEs replied that they implemented operational measures to cut energy costs, such as adjusting their air conditioners to more appropriate temperatures and practicing Cool Biz (a nationwide campaign for dressing lightly during sum-mer months in order to avoid overusing air conditioners.) Also, 49% of SMEs made facility changes to save energy,

such as installing, repairing or improving energy-saving equipment or machinery. The two main reasons why the figure is smaller for facility changes compared with operational measures are “lack of funds” (54%) and “low economicalpotential”(36%).

Figure1-3-24showstheSMEenergyinputratio(theratio of fuel and electricity costs out of total raw mate-rial costs). It can be seen that the SME energy input ratio improved slightly in 2005 compared to 1985. However, the improvement is smaller than that for large enterprises, and it has increased compared to 1995. Energy saving by SMEs is an important issue, since it not only helps lower costs forSMEs,buthelps to reduceCO2 emissions and prevent global warming. At present, various measures are being implemented to promote energy saving among SMEs. One of these measures, where large enterprisesprovide the funds and technology to SMEs in order to promote energy saving (domestic credit system 14)), will contribute to solving the financial issues SMEs face when introducing facility changes, for example. With the imple-mentation of such measures, it is anticipated that SME energy saving will be further promoted in the future.

14) See Chapter 2, Section 1.4 (2) for details.

Fig. 1-3-23 Initiatives taken by SMEs on energy savingThe percentage of SMEs working on operational measures to save energy is large, but the percentage of those working for facility changes is small

Source: SME Agency, National Federation of Small Business Associations, National Association of Trade Promotion for Small and Medium Enterprises, Survey of Effects of Crude Oil and Raw Material Price Hikes on SMEs (September 2008).

84.284.2

49.149.1

15.815.8

50.950.9

0

20

40

60

80

100

Operational measures (air conditioner adjustment, Cool Biz, lights off during

lunch time, etc.)

Facility changes (introduction of energy-saving

facilities/equipment, repairs/improvement of

existing facilities/equipment)

Not implementing Implementing

[1] Percentage of companies implementing energy-saving measures

53.7

36.2

10.4 7.9

0

20

40

60

80

100

Lack of funds Low economicalpotential

Lack of knowledge on energy-saving

issues

Others

[2] Percentage for not implementing energy-saving measures for facilities

(%)(%)


35

Section 3

4. Challenges for the future

As seen above, with the global economy slowing down, the management environment surrounding SMEs is in an extremely difficult state. Fig. 1-2-7 [2] showed that the average ordinary profit to sales ratio for SMEs is low compared to large enterprises, and has been on a

declining trend since around the end of 2005. Lookingat the average profit ratios, approximately 40% of SMEs have negative ordinary profits, and this figure has been increasing since 2004 (Fig. 1-3-25), indicating severeearnings conditions for SMEs.

In terms of the future outlook, around 75% of SMEs predict that their business results will worsen in the next

Fig. 1-3-24 Trend of energy input ratioThe SME energy input ratio has been on an increasing trend throughout the 1990s

Source: Recompiled from METI, Census of Manufacturers.Notes: 1. Energy input ratio = energy costs (total fuel and electricity costs) / total raw material costs. 2. “Material-type industry” refers to the food, beverages, tobacco and feed, textile, apparel, lumber, furniture, paper &

pulp, printing, chemical, petroleum, plastic, rubber, leather, ceramic, iron & steel, non-ferrous metals, and fabricated metal; whereas “processing and assembly-type industry” refers to the general machinery, electrical machinery, information machinery, transportation equipment, precision instruments and miscellaneous industries.

3. Survey conducted towards enterprises with 30 or more employees.

9.1

6.26.7

2.11.5 1.4

5.4

4.14.8

2.52.1 2.4

0

2

4

6

8

10

1985 1995 2005

Material-type industry (large enterprises) Processing and assembly-type industry (large enterprises)

Material-type industry (SMEs) Processing and assembly-type industry (SMEs)(%)

Finding hints in “running water,” succeeded in producing environment-friendly natural energy1-3-4

Seabell International Co., Ltd. (hereinafter referred to as “Seabell”), based in Tokyo’s Chiyoda City, with 7 employees and capital of ¥67 million, develops renewable energy technology.

“Stream,” one of its recent developments, is a small-sized hydroelectric power generator to be placed in waterways and uses running water to generate electricity. The technology of harnessing electricity from naturally flowing waterways has been studied in academic institutions, but has not reached the level of being able to generate signifi-cant amounts of electricity. Seabell has commer-cialized a global level, exclusive technology based on its expertise as a water consultant, namely by increasing the water flow speed and thus increas-ing kinetic energy. After acquiring a patent in Japan in October 2007, Seabell is currently applying for patents in the United States, EU, Korea, India, China and Australia.

Traditional hydroelectric power generation was seen as raising the burden on the environment, spe-cifically through the construction of dams. Seabell’s

technology is receiving attention due to the use of naturally flowing water, which places no burden on the environment, and without the construction of dams. Some of the advantages of Seabell’s prod-ucts are that it can be placed in various locations, such as sewage and water purification facilities, agricultural waterways and private factories, as well as its operational stability compared to wind and solar power generation, and simple installa-tion and maintenance.

Since the product can be placed near where the electricity is needed, Seabell hopes the product can be applied in various areas, including for disaster recovery assistance. It has received numerous inquiries from countries like India and Bangladesh, which are leading to orders. Mr. Yuji Unno, Presi-dent, says, “We would like to globally expand this locally generated, locally used, natural and renew-able energy system, that can help reduce CO2 emis-sions, and contribute to the global environment.” Mr. Unno is continuing to pursue the realization of his dream.

Case


36

1-2yearsor so (Fig.1-3-26).SMEshaveanevenmorepessimistic outlook for the industries they belong to.

Next is a look at how SMEs have been trying to over-come this difficult management environment.

(1) The management strategy of SMEsFig. 1-3-27 shows the management strategies of dif-

ferent SMEs, based on whether their business results (namely the ordinary profit ratio) significantly improved or worsened (hereinafter referred to as “more profitable companies” and “less profitable companies”), and by indexing their various strategies such as “earning strat-egy” and “business perspective,” using data from the Management Status Survey. If we look at the “business

perspective” of more profitable companies, the number of SMEs that replied “long term” exceeded “short term” by 46.5%. Meanwhile, the same number is only 27.5% when we look at less profitable companies. This shows that while more SMEs have a “long term” perspective in either group, the tendency is especially strong among more profitable companies.

According to this chart, there is a difference in “value adding strategy” among both groups, with a higher ratio of more profitable companies pursuing “high added value.” For “growth perspective,” more profitable compa-nies were “expansion-oriented,” while the perspective for less profitable companies was to “preserve status quo,” leaving a clear distinction.

Fig. 1-3-26 Short term business outlook of SMEs (1-2 years ahead)Responses of “bad” and “relatively bad” regarding the short-term business outlook (1-2 years ahead) was 75% for their own companies and 86.3% for the industries they belong to

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008).Note: Companies were asked the outlook compared to the present.

0.3

1.5

7.57.5

10.510.5

16.116.1

33.533.5

36.236.2

52.852.8

38.838.8

0% 20% 40% 60% 80% 100%

Outlook for the industry

Good Relatively good Neutral Relatively bad Bad

2.92.9

Outlook forthe company

itself

Fig. 1-3-25 Trends in the ratio of loss-making enterprisesSMEs have higher rates of being loss-making enterprises compared to large enterprises

Source: Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.Note: Enterprises with negative ordinary profits are defined as loss-making enterprises.

0

10

20

30

40

50

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Large enterprises (All industries) SMEs (All industries) Large enterprises (Manufacturing)

SMEs (Manufacturing) Large enterprises (Non-manufacturing) SMEs (Non-manufacturing)(%)

(Year)


37

Section 3

Fig. 1-3-27 The relation between business results and management policiesThe management policies of companies for which the ordinary profit ratio improved significantly over the past 3 years can be characterized as long-term oriented, expansion-oriented and pursuing high added value

Source: Mizuho Research Institute Ltd., Survey on the Business Environment and Management Status of SMEs (December 2008).Note: Recompiled by narrowing down the choices from 5 to 3 for each item, and then showing the difference in ratios of

respondents finding that item important.

53.2

5.4

16.3

27.1

48.5

46.5

40.8

10.8

10.9

12.9

40.3

10.2

46.5

40.3

42.1

7.3

63.3

25.2

28.9

27.5

43.7

63.7

4.7

20.4

69.8

15.5

0102030405060708090100

Revenue/profit strategyExpanding market share

Internal growth through improved management

Niche marketing

Seniority-oriented

Low cost

Maintain status quo

Process innovation

Seeking more businesses with existing clients

Social contribution

Sound financial status

Bottom-up management

Focus on core business

Long-term oriented

Focused on profitability

Short-term oriented

Diversification

Top-down management

Aggressive investment

Pursuit of profits

Achieving new clients

Product innovation

Expansion-oriented

Pursuing high added value

External growth through M&A

Mass marketing

Focused on results

Business perspective

Business development

Decision making process

Balance between investmentand financial status

Social contribution and pursuit of profits

Client strategy

Innovation strategy

Growth perspective

Value adding strategy

Growth tactics

Marketing strategy

Personnel strategy

0 10 20 30 40 50 60 70 80 90 100

(%)

(%)

Ordinary profit ratios worsened significantly (over the past 3 years)Ordinary profit ratios improved significantly (over the past 3 years)

Change in ways of thinking under a worsening economic environment1-3-5

Hard Lock Industry Co., Ltd., based in Higashi-osaka City, Osaka Prefecture, with 45 employees and capital of ¥16 million, was established in 1974 and is involved in the development, production and sale of the “Hard Lock Nut,” which is a nut that does not come loose. Mr. Katsuhiko Wakabayashi, the President, is an inventor with the nickname “The Thomas Edison of Osaka.”

The idea behind the Hard Lock Nut originated from the wedge used in Japanese shrine construc-tions for preventing the main arch from collapsing. With the basic structure using 2 nuts, the convex is slightly off-center, onto which the upper concave nut is twisted as the “lock nut,” bringing about a strong interlocking effect.

The price of the Hard Lock Nut is almost double that of normal nuts. Due to its high price, it was not

well-received by clients at first. However, once the loosening-prevention effect was valuated highly through various tests, the Hard Lock Nut gradually started to be used all over the world. It is currently used in the bullet train lines, highways, nuclear power plants and production facilities of major manufacturers both domestically and overseas.

The current global economic slowdown is impacting this company too, and orders received for the Hard Lock Nut are decreasing, mainly due to major manufacturers holding back on capital expenditures. However, the company views the current situation, where major manufacturers have stopped their production lines, as an opportunity to have their clients replace the current nuts with the Hard Lock Nuts, and is aggressively conducting sales activities.

Case

(2) Review of management strategies based on the change in business environment

Fig. 1-3-28 shows the result of a survey conductedtowards SMEs, asking them whether they have reviewed their management strategy in the past and, as of Decem-ber 2008, have plans to review it in the future. In this survey, a higher percentage of more profitable companies tended to reply that they have reviewed or plan to review

their management policies and strategies compared to less profitable companies.

The survey results show that since the fall of 2008, with the management environment sharply worsening one level further, even more profitable companies are considering reviewing their management strategies.

It is important for companies to adapt to changes in the business environment and pursue the ideal strategy


38

in order for them to maintain their competitiveness and sustainable growth. This is especially so in the current environment, where both internal and external demand is dropping sharply, which implies that there is a high possibility that market needs have changed. SMEs should accurately grasp the changed needs, and generate and implement management strategies to develop and provide

products and services that meet these needs.There is strong hope for SMEs, which form the back-

bone of the Japanese economy, to create new value which meets these changed needs, and aggressively pursue innovation under this “once in a century” crisis situation.

The next chapter analyzes the innovation of SMEs, which is the key driver for creating and developing markets.

The development of a digital microscope based on Japan’s manufacturing expertise1-3-6

Claro, Inc., based in Hirosaki City of Aomori Prefecture, with a workforce of 7 and capital of ¥217.25 million, has developed and sells the “Vir-tual Slide,” which can digitalize samples of cancer and other tissues placed on a slide glass.

The Virtual Slide takes several photographs of the sample in high resolution, and then pastes the photographs together using digital technology, making it possible to view the tissue sample using a monitor, freely zooming in and out or moving the viewpoint around. Based on these characteristics, the Virtual Slide makes microscopic observation

much more efficient compared to the traditional manual observation. It also made image exchanges across long distances possible by digitalizing the tissue samples. The company attributes its success in the most advanced R&D to the numerous world class Japanese engineers in areas such as grinding and polishing, and the fact that only domestic processed components are used in the company’s products. Mr. Terumasa Takamatsu, President, is eager to continue cutting-edge R&D and then sell to the world by fully utilizing Japan’s manufactur-ing quality and the Made-in-Japan brand power.

Case

Fig. 1-3-28 Changes in management strategy and the ordinary profit ratio situationA higher percentage of SMEs that have changed their management strategy in the past, or plan to do so in the future, tended to have improved ordinary profit ratios


Note: Ordinary profit ratios are for the past 3 years.

0.5

4.04.0

0.5

4.14.1

8.58.5

22.322.3

8.58.5

21.521.5

20.120.1

21.921.9

20.120.1

23.023.0

34.234.2

32.332.3

34.234.2

32.532.5

36.736.7

19.519.5

36.736.7

18.918.9

0% 20% 40% 60% 80% 100%

No

Yes

No

Yes

Significant improvement Slight improvement No change Slight deterioration Significant deterioration

Plan to change managementstrategy in the future

Changed managementstrategy in the past

Chapter 2

The creation and development of markets by SMEs

Chapter 1 looked at the current situation surrounding SMEs in Japan, whose business conditions are still worsening as they face problems such as decreasing sales and orders due to the slowing of the global economy, and the rapid deterioration of Japan’s economic climate as a result of the effects of the financial crisis which began in the United States. Where can SMEs find the means of survival and how should they best act to overcome the difficult situation present in this severe economic environment?

Currently, gross demand itself is falling, so it is necessary to look at and understand the changing needs of customers, and consider the future shape of the global economy, including Japan. At the same time, it is important to discern potential needs and provide the products and services that society demands accurately. There is no shortage of cases where the potential needs of Japanese society have not been adequately met, in areas such as food safety and security, environmentally safe products, and services in support of childcare and nursing. SMEs, which support the framework of the Japanese economy, are expected to fill a great role in responding positively to these needs and actively real-izing innovation through the development of new products and services, thus. By boldly attempting to innovate, and working to create and develop new markets, SMEs should be able to find a way out of the present severe economic environment, and achieve growth that will reach into the future.

This chapter, acknowledging the aforementioned problems, attempts to clarify the current situation SMEs find themselves in when developing new products and services, and analyzes the challenges that they need to address in creating and developing markets through innovation.

Section 1 will look at the current situation and challenges which exist in areas such as the research and development activities being conducted by SMEs based on the features of innovation by such enterprises. Section 2 will look at the current situation and challenges in the market strategies of SMEs, addressing questions including how SMEs should try to understand the customer needs in order for them to achieve innovation. Sections 3 to 5 will look more closely at the management resources of SMEs, and the applica-tion of intellectual property, personnel and funds, which are the keys to realizing innovation. Specifically Section 3 will consider the current situation and challenges which exist in protection and application of intellectual property, Section 4 will consider maintaining and developing personnel to support innova-tion, and Section 5 will consider the procurement of funds for research and development.

Section 1 Innovation by SMEs

40

1. Why is innovation necessary now?

(1) The economic cycle, and research and development activity

Oneimportantareaofworkinrealizinginnovationis“research and development.” First is to examine the ways in which SMEs have addressed research and develop-ment in the past. Fig. 2-1-1 shows changes in the ratio of ordinary profit to sales in SMEs since 1997, the ratio of SME capital investment to sales, and the ratio of SME research and development costs to sales. According to this graph, in recessionary phases, the ratio of ordinary

profit to sales falls in SMEs, in conjunction with which the ratio of capital investment to sales decreases. How-ever, it is also apparent that the ratio of SME research and development costs to sales has generally remained steady even in times of economic slowdown. This sug-gests that even though we are in a recessionary phase and a severe economic environment, SMEs are still placing importance on research and development activities, and continuing to work in this area. In fact, regional Bureaus of Economy, Trade and Industry held interviews with local SMEs from December 2008 through January 2009, and some of the SMEs reported that in spite of the severe

1) The concept of innovation will be examined in more depth later (See 2.(1)).


First of all, the term “innovation” is not limited solely to the general idea of “technological innovation” wherein compa-nies develop new products, improve production processes and so on. It is a concept with the broader meaning of “reform,” and includes areas such as the development of new markets and the introduction of novel forms of organization. For SMEs, in particular, the word reaches beyond simple research and development activities, and includes a wide range of concepts such as achieving progress in one’s own business by developing new products and services, and finding sources of creativ-ity via flashes of insight and inspiration.1)

Why is it important for SMEs to work on bringing about innovation now, despite the fact that they are in a difficult economic environment? This is the first question to be considered.

Fig. 2-1-1 The economic cycle, and research and development activity (SME manufacturers)The ratio of research and development costs to sales in SME manufacturers remains at a constant level regardless of the fluctuation of the economic cycle

Sources: MOF, Financial Statements Statistics of Corporations by Industry; METI, Basic Survey of Japanese Business Structure and Activities.

Notes: 1. Enterprises with capital of less than ¥100 million are defined as SMEs and enterprises with capital of ¥100 million or more are defined as large enterprises.

2. The ratio of ordinary profit to sales and ratio of capital investment to sales are derived from MOF, Financial Statements Statistics of Corporations by Industry, and the ratio of research and development costs is derived from METI, Basic Survey of Japanese Business Structure and Activities.

97 98 99 00 01 02 03 04 05 06

Ratio of research and development cost to sales Ratio of capital investment to sales

Ratio of ordinary profit to sales

(%)

(Fiscal year)

3.5

3.0

2.52.6

2.3

2.0

2.5

2.2

1.9

2.3

2.8

3.13.0

2.9

2.62.7

2.1

2.3

1.5

1.2

2.2

0.6 0.6 0.6 0.6 0.6 0.6 0.60.7 0.7

2.1

1.5

2.0

1.5

1.0

0.5

0.0

0.7

Chapter 2 The creation and development of markets by SMEs

41

Section 1

economic climate, they want to change business direction, move into growth areas, and work on the development of new technologies and products.2)

In this way, SMEs are engaged in research and devel-opment for the purpose of developing and improving the products and services that serve as the pillars of their business in order to sustain and raise competitiveness in the future, looking beyond their current situation. In government too, in the “Follow-up and Revision of the New Economic Growth Strategy” which was given Cabi-net approval in September 2008, areas such as creation of new mechanisms for promoting open innovation that transcends business and national borders, and driving the development of human resources were raised as key ele-ments of Japan’s growth strategy, based on awareness of the problems from a long-term standpoint.

The economist Joseph Schumpeter, who was active in the first half of the 20th Century, insisted on the importance of innovation.3) Management resources, such as workers, introduced for the production of existing products during boom phases become surplus when we enter into recessionary periods where production activ-ity falls. Businesses that aim to develop new products (entrepreneurs), can apply the management resources which became surplus in the downturn, and engage in

“new combinations” of those resources. By doing so, it is possible for them to develop new products and bring about innovation.

Another opinion gained from some SME managers at the aforementioned interviews held by regional Bureaus of Economy, Trade and Industry was that recessionary periods can serve as a good opportunity to secure excel-lent personnel. Recessionary periods are difficult times for SMEs, and a lot of managerial difficulties present them-selves. However, there is also a trend in SMEs perceiving these tight periods instead as opportunities, working to restructure their businesses and enact managerial reforms for future periods of activity, and this can be seen as a hidden strength of SMEs.

(2) Relationship between research and development activities and profit margins

Are the research and development activities of SMEs actually contributing to an increase in profit margins?

Figure 2-1-2 shows changes in operating margins in each fiscal year from 1994 to 2006 of groups of SMEs with ratios of research and development costs to sales of 2.5% or more, more than 0% to less than 2.5%, and 0% after being recompiled from METI’s Basic Survey of Japanese Business Structure and Activities. The higher

2) Please refer to the Small and Medium Enterprise Agency’s “The Emergency Expanded Bureaus of Economy, Trade and Industry Directors-General Meeting” (February 2009).

3) Schumpeter(1912),ItoMitsuharu&NeiMasahiro(1993).

Fig. 2-1-2 Trends in the ratio of research and development costs to sales and operating margins for SME manufacturersThe higher an enterprise’s ratio of research and development costs to sales, the higher its level of operating margin tends to be

Source: Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.Note: Enterprises that meet the definition of SME according to the Small and Medium Enterprise Basic Law in two periods,

FY1994 and FY2006, and also fall in the same category in the legends consecutively from FY1994 to FY2006 were surveyed. The numbers of enterprises included in the survey were 110 enterprises whose ratios of research and development costs to sales were 2.5% or more, 375 enterprises with more than 0% to less than 2.5%, and 1,307 enterprises with 0%.

Ratio

of o

pera

ting

prof

it to

sal

es

6.1 6.15.9

4.33.9

5.3

6.6

3.8 3.94.3

5.2 5.25.7

3.83.5 3.5

3.2

2.5

3.23.5

2.83.1

3.64.0 3.9

3.9

2.6 2.5 2.62.3

1.6

2.12.4

1.5

2.2

2.7

3.33.4 3.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

94 95 96 97 98 99 00 01 02 03 04 05 06

(Fiscal year)

(%)2.5% or more

More than 0% to less than 2.5%

0%

Ratio of research and development costs to sales


42

the ratio of research and development costs to sales in the group of SMEs, the higher the levels of operating mar-gin. This suggests the possibility that the research and development activities of SMEs are important factors in increasing operating margins.

Fig.2-1-3showstherelationshipbetweenthepropor-tion of SME sales made up of newly developed products, and changes in sales in the last three years, based on the Survey on the Innovation Situation through the Creativity and Research and Development of Companies 4) (hereinaf-ter referred to as the Creativity Questionnaire) conducted byMitsubishiUFJResearchandConsultingCo.,Ltd.Bylooking at this survey, we can see a trend wherein compa-nies with a certain high proportion of new product sales to overall sales have increased revenue. It has been said for some time that as globalization and the development into a knowledge-based economy progresses, and the intensity of competition increases, unless companies continue to develop products and services which differentiate them-selves from the competitors through research and develop-ment activities, the period will be more difficult in terms of maintaining and expanding sales, and ensuring profit. It is likely that this situation can be seen in the vivid picture paintedbythedatainFig.2-1-2andFig.2-1-3.

Above all, it can be assumed that in the present situation, with total demand falling and the competition

between companies to survive expected to become ever fiercer, it is vital for SMEs to bring out competitive prod-ucts and services through innovation in order to maintain and expand sales.

2. Features of innovation by SMEs

(1) The concept of innovationThe importance of SMEs endeavoring to realize

innovation through research and development activities was previously seen. Here, the concepts relating to the phenomenon of innovation will be considered.

The concept of innovation, as previously stated, is not just technological innovation in the narrow sense, but is a broader concept which includes, amongst other things, the development of new markets. There are various ways in which we can classify the concept of innovation, but it is typically classed as either “product innovation” which refers to the development of new products and services, or “process innovation” which refers to improvement of production methods. It is also possible to classify innova-tion as either “incremental,” the gradual improvement and extension of existing technology, knowledge and so on, or “radical,” the creation of revolutionary products or production methods which never previously existed.5)

Innovation by SMEs is a wide-ranging subject, not

Fig. 2-1-3 The proportion of sales made up of newly developed products and changes in salesSMEs with a certain high proportion of new product sales to overall sales tend to have increased revenue

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on the Innovation Situation through the Creativity and Research and Development of Companies (December 2008).

Note: Data for SMEs. The changes in sales are for the most recent three years.

Substantial increase in revenue Some increase in revenue Flat

Some decrease in revenue Substantial decrease in revenue

0% 100%

Up to 5%

6-10%

11-20%

21% or more

Pro

por

tion

of s

ales

mad

e up

of n

ewly

dev

elop

ed p

rod

ucts

4%4%

7%7%

9%9%

12%12%

37%37%

39%39%

47%47%

36%36%

22%22%

24%24%

18%18%

28%28%

25%25%

19%19%

21%21%

16%16%

13%13%

11%11%

5%5%

8%8%

4) ImplementedinDecember2008.Questionnairesurveytargeting30,000corporatebusinesses.Responserateis8.9%.5) Schumpeter (1912) expressed radical development by saying “Add as many mail-coaches as you please, you will never get a railroad by so doing.”


43

Section 1

limited to technological innovation through research and development activities. There are many cases where ideas or creativity have appeared suddenly and served as flashes of inspiration for innovation while routinely searching for business seeds, and thinking about improvement in production processes and the effective application of management resources.

This chapter will look at the current situation and challenges with regard to the efforts of SMEs aiming at bringing about innovation. In doing so, the question of what kind of features exist in innovation by SMEs will be asked, putting the facts in order through comparison with large enterprises.

(2) Features of innovation by SMEsCompared to large companies, one characteristic of

SMEs is that their management structure is more compact. In consideration of this fact, we can think of innovation by SMEs as having the following three features.[1] The management takes a position of leadership from

the establishment of policies through to the develop-ment of originality and ingenuity on-site.

[2] The role of qualities such as creativity in areas out-side of continuous research and development, such as in turning ideas that present themselves suddenly in everyday life into products and improving produc-tion processes through creativity in the workplace, is significant.

[3] SMEs are instrumental for innovation in nichemarkets.

Ontheotherhand,thefeatureofinnovationbylargeenterprises can be thought of as the fact that, compared to SMEs, they make use of their organizational power, and invest a great deal of researchers and funds for large-scale research and development, and projects which require a long period of time before results are seen to bring about innovation.

Given these facts, what is the actual situation regarding the features of innovation by SMEs? This question will now be looked at based on the Creativity Questionnaire and other sources.

[1] Leadership by the managementFig. 2-1-4 indicates which of the specific efforts large

A business where the management showed leadership in tackling the realization of innovation

Based in Tokyo’s Chuo City, with a workforce of 65 and capital of ¥30 million, Godak Market-ing Corp. is a trading company working mainly in import for the development and sale of marine products such as high-grade abalone and spiny lobster. The company not only mediates the import process, but is also working to develop new foods and ingredients which did not previously exist, applying high-level technology in areas such as the freezing and thawing of marine products. In other words, they are working to innovate in food. Godak’s products attract high praise from standard and special restaurants alike. Marine products including the “Cat’s-eye Oyster” and the spiny lob-ster known as “Murasaki-Shikibu,” are establishing themselves as high-grade brands.

The president of Godak, Kimihiko Araya, exerts leadership over the company himself, and is always seeking out new delicious foods with his own tongue. Mr. Araya’s commitment to food is so strong that he goes to restaurants almost every weekday, sometimes visiting five or six restaurants in a single day. Mr. Araya was born into a family which ran a restaurant, and majored in marine pro-duce freezing technology at the Tokyo University of Fisheries (now the Tokyo University of Marine Science and Technology). After working at a major food importer, he established Godak. He has always been thinking about food and marine products.

The strength of Godak lies in its having the know-how necessary to strictly select the tastiest marine products, maintain a thorough system of

quality control, and deliver them to the table with the taste fully intact. It is the combination of the best and most appropriate selection of fish types and fishing grounds, timing of the freezing process, management of the temperature during transport and storage, and thawing technology, he says, that is the first step in developing the import business of the finest tasting marine produce from around the world. For example, one of the company’s products is the “Angel Prawns,” a type of shrimp farmed in New Caledonia. Water quality, water temperature, bacteria testing and other functions are strictly controlled on a 24 hour basis, they grow up eating natural feed, and harvesting is restricted to the period when they are at their most delicious, between January and July. After harvest, they are frozen using the company’s own technology, and imported into Japan. It is thorough quality control such as this that has resulted in the product being awarded the Qualicert mark, which shows that it is a food of the highest quality, by the French Food Safety Agency. This is the only shrimp in the world to have been given this mark.

Due to rivals joining the market and the sophis-ticated tastes of consumers, the life-cycle of high-grade marine products is on a scale of about five to ten years, and it is thus necessary to be tackling the development of new products at all times. Godak hopes in the years to come, led by Mr. Araya, to utilize every member of its staff to continue tire-lessly pursuing innovation.

2-1-1Case


44

enterprises and SMEs are placing emphasis on when aim-ing for innovation. According to this, SMEs are placing the most emphasis on “creativity by the management” for innovation. Compared to large enterprises, there is slightly more emphasis on “the spirit of the management to challenge” and “quick decision-making by the manage-ment,” all of which lay stress on the nature and leadership skills of the management. In areas such as “research and development activities” and “marketing activities” on the other hand, SMEs fall below large enterprises. We may assume that this is because large enterprises emphasize investment in research and development with increasingly

large sums of money, along with marketing activities which apply large-scale business networks.

[2] Creativity in areas outside of continuous research and development

There is no shortage of examples of SMEs taking ideas from everyday life and turning them into products. There is one case, for example, of a housewife who had no connection with business, having a flash of inspiration while caring for her children and turning it into a business project that met with success (Case 2-1-2).

Fig. 2-1-4 Implementation status of specific efforts aimed at innovationAt SMEs, the management takes leadership for the realization of innovation


Notes: 1. The survey results show the specific activities aimed at the realization of innovation taken in the past five years from 2003 to 2007.

2. The figures represent all enterprises that have taken some sort of action towards the realization of innovation. 3. The total numbers of items where the answer was “yes” (multiple responses allowed) were proportionally distributed

among each item so that the total of the items amounted to 100%.

11%

6%

8%

14%

13%

16%

17%

16%

12%

11%

12%

15%

11%

14%

11%

14%

Cooperation with external organizations

Marketing activities

Research and development activities

Creativity of the employees

Cooperation between the employeesand the management

Quick decision-making by the management

Creativity by the management

The spirit of the management to challenges

Large enterprisesSMEs


45

Section 1

A business where a new product was developed from an idea that came about in everyday life2-1-2

Based in Tokyo’s Chiyoda City, with a workforce of 30 and capital of ¥168.5 million, Navit Co., Ltd. is a company born from the idea of a mother of two with no connection at all with business. In addition to developing the “UsefulQuick Transfer Map” that shows which car is the most convenient to get on at each station on the Tokyo subways, and a barrier-free map, it runs “Daily Bargain Guide,” a web and cellular phone service drawing together informa-tion on special deals in supermarkets and more.

The “UsefulQuick Transfer Map,” which came about as the result of the president of the company, Yasuyo Fukui, who started the business, having a flash of inspiration while caring for her children. One day in the summer of 1995, Mrs. Fukui was in Nishi-Nippori Station with a baby stroller, shuffling around the platform in search of an elevator or escalator. Climbing up and down the stairs with her baggage and the baby stroller was exhausting work, and also, since she could not see her footing, it felt extremely dangerous. It was at then, on the platform, that the idea for the “UsefulQuick Trans-fer Map” hit her.

Mrs. Fukui set about a complete survey of the 256 stations (at the time) on the Tokyo subways. She patiently noted the positions of things such as

escalators, elevators, toilets and public telephones in each station, and the most convenient cars to use to transfer to different lines, creating the original “UsefulQuick Transfer Map.” Based on that, she persevered in her business activities, approaching more than 50 publishing houses, which resulted in the “UsefulQuick Transfer Map” being included in a part-time work-related magazine.

After establishing the company in 1997, her “UsefulQuick Transfer Map” was adopted by the Tokyo subways, and sprang into fame. The business of Navit steadily expanded, and in 2006, it began the “Daily Bargain Guide” service as a new business project, enabling users to look at information on supermarket bargains from the pullout advertise-ments in newspapers using the web or their cellular phone. This too is built on an idea that came in a flash to President Fukui, in her everyday life while trying to juggle her job and housework, when she realized “If I was able to check information on local supermarket bargains while on the train coming back from work, shopping for the evening meal on the way home would be more efficient.”

The company is now aiming to expand further as an IT enterprise, armed with the flow of ideas from President Fukui.

Case

A business that succeeded in mass producing a home takoyaki maker, using pressing technology and inspiration2-1-3

Based in Moriguchi City, Osaka Prefecture, with a workforce of 60 and capital of ¥40 million, Yamaoka Industrial Corporation is the SME which developed Japan’s first home takoyaki maker in 1962, and nur-tured it into a huge hit product, which sold more than 10,000 units a month at its peak.

The home takoyaki maker was created from the strong desire of the young Toshio Yamaoka, who had only just joined the company (now he is presi-dent), to “do something new!” In those days, the company’s strength lay in pressing technology, and Mr. Yamaoka recalls that he always wanted to make use of their expertise in this area. It was at this time that he witnessed staff in Doguya-suji (a specialty street for making and selling cooking apparatus), Naniwa, Osaka making takoyaki makers by hand, and suddenly the idea came to him, “If we use a press process to make takoyaki makers, it can be done cheaply.”

There were technical difficulties with their gen-eral presses, since to work as takoyaki makers, it is necessary to produce depressions in them. But

Mr. Yamaoka thought that it would be possible to make complex shapes if they applied the company’s technology, and so took up the challenge of manu-facturing a home takoyaki maker using presses.

The home takoyaki maker that came about as a result of this challenge was a huge hit. It perme-ated everyday life to such an extent that there were people in Osaka who even bought them as bridal gifts. Today, Yamaoka’s products still have a share of greater than 90% in the home takoyaki maker market.

The company took advantage of the success of its takoyaki maker to work on the development of other items such as gas cooking appliances, and has thus far made around 200 types of products. Mr. Yamaoka has high hopes for the efforts of the next generation, saying “Technology has become more sophisticated and complex than it ever was in the past, and we have entered an era where it is difficult to come up with new products. However, despite this situation, I want young people to continually take up the challenge of developing new things.”

Case


46

There are many cases among SMEs where progress in their own business is being achieved through improve-ment of production processes due to creativity in the workplace, and inventing more effective methods of

applying management resources and other such activities, rather than through continuous research and develop-ment. In this way, elements such as creativity outside of research and development form a significant part of the

A business working to improve its production process2-1-4

Based in Higashiosaka City, Osaka Prefecture, with a workforce of 70 and capital of ¥78.94 mil-lion, Sanwa Byora Seisakusho Co., Ltd. is a low-volume manufacturer of various types of screws. It is an SME which succeeded in raising production efficiency by reviewing its operations and systems.

The company initially faced a number of prob-lems. For example, it took a great deal of time to find the necessary drawings to carry out numerous types of low-volume production processes for screws, since their product line was huge at around 8,000 types, while mastery of the individual prod-ucts was difficult, which led to frequent failures during inspection.

In order to resolve these problems, the company implemented a review of its operations, and as a part of that, it took ideas from the on-site staff (with a focus on those who were highly skilled with computers) and built its own new inspection management system. The system contributed sig-nificantly to an increase in the company’s produc-tion efficiency, mainly in the following three areas. Firstly, the product drawings of the 8,000 types of screws were stored on a computer system and the required one could be retrieved as needed, and looked at on the computer. With this ability, it became possible to prevent mistakes in picking the

latest version of the drawings, and greatly reduce the time required in searching for them.

Secondly, the measuring equipment used in inspections, such as slide calipers were connected to the computer. Equipment was automatically adjusted daily, and it was possible to accurately measure the products without someone having to adjust the equipment (calibrate it), read the information from the scale, write down the results and so on. By using this ability, they were able to eliminate mistakes in equipment adjustment, scale reading and notation in measurement operations.

Thirdly, this system enabled the situation regard-ing orders to be managed in terms of product and client, meaning they could analyze patterns in the receipt of orders. With this function, it became pos-sible to predict the time of the next order and set up an efficient production schedule accordingly. With today’s severe economic situation, this company is also facing falling orders, but the president Hiroshi Kashimoto is aiming to improve things further, saying “While maintaining the high quality, I want to continue to eliminate unnecessary, unrealistic and inconsistent elements in the manufacturing process, raise production efficiency, and make it through the recession.”

Case

Fig. 2-1-5 Implementation status of research and development in companies carrying out activities aimed for innovationSMEs have a high rate of activities aiming to innovate through non-continuous research and development or methods other than research and development

Source: Ministry of Education, Culture, Sports, Science and Technology National Institute of Science and Technology Policy (NISTEP), National Innovation Survey (December 2004).

Notes: 1. A survey was administered to about 43,000 selected enterprises out of enterprises with more than 10 employees. The response rate was about 21%. The period of the survey was from 1 January, 1999 to 31 December, 2001.

2. For this survey, small-scale is defined as having 10–49 employees; medium-scale, 50–249 employees; and large-scale, more than 250 employees.

0% 100%

Small-scale

Medium-scale

Large-scale

Continuous research and development Non-continuous research and development No research and development

47%47%

57%57%

82%82%

29%29%

21%21%

9%9%

24%24%

21%21%

9%9%


47

Section 1

efforts of SMEs to realize innovation. Fig. 2-1-5 shows the situation regarding implementation of research and development in companies carrying out activities aiming for innovation based on the Ministry of Education, Cul-ture, Sports, Science and Technology National Institute of Science and Technology Policy’s (NISTEP) National Innovation Survey. In large-scale companies with a work-force of 250 or over, more than 80% are working towards innovation through continuous research and development. Among small-scale companies with workforces of from 10 to 49 on the other hand, no more than half are working towards innovation in this way. The remainder are either aiming to innovate through non-continuous research and development, or without conducting any research and development at all.

Fig. 2-1-6 shows which is stronger in large enterprises and SMEs, the trend toward acquisition of patent rights or model utility rights, according to the Questionnaire Survey on Market Capture and Intellectual Property Strategies conducted by Mitsubishi UFJ Research and ConsultingCo.,Ltd.6) According to this, there is a trend for more SMEs to possess utility model rights rather than patent rights compared to large companies. Utility models protect ideas not of a high enough level to require patents. This data can be thought to suggest that although we do not know whether they have been turned into products or not, SMEs tend more than large enterprises to use small ideas to commercialize products.

[3] Development of niche marketsFig. 2-1-7 shows the level of recognition in companies

regarding the question of whether the leaders of innova-tion achieved over the past ten years in each business area have been large enterprises or SMEs. The stronger the niche-like character of a market, the higher the proportion of responses saying “New innovation is almost all being realized by SMEs,” so it may be assumed that SMEs are skilled in the development of niche markets.

Fig. 2-1-6 Acquisition rate of patent rights and model utility rightsSMEs have a higher tendency to acquire model utility rights rather than patent rights compared to their large counterparts

Source: Mitsubishi UFJ Research & Consulting Co., Ltd., Questionnaire Survey on Market Capture and Intellectual Property Strategies (December 2008).

Note: Large enterprises here are defined as enterprises other than SMEs as defined in the Small and Medium Enterprise Basic Law.

100%0%

Largeenterprises

SMEs

Model utility rights Patent rights

25.7%25.7%

31.8%31.8%

74.3%74.3%

68.2%68.2%

Fig. 2-1-7 The relationship between niche markets and enterprises that lead innovationThe stronger the niche-like character of the market, the higher the proportion of SMEs leading innovation


0% 100%

Applies

Applies to an extent

Does not apply much

Does not apply

The

core

bus

ines

s is

in a

nic

he m

arke

t (r

ecog

nitio

n b

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mp

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Mostly SMEs Tends to be SMEs Tends to be large enterprises

Mostly large enterprises There has been no realization of innovation

Major leaders of innovation in the past 10 years (recognized by companies)

21%21%

14%14%

15%15%

13%13%

24%24%

26%26%

18%18%

12%12%

20%20%

24%24%

26%26%

21%21%

17%17%

16%16%

17%17%

23%23%

19%19%

20%20%

24%24%

31%31%

6) Questionnaire survey implemented in December 2008, targeting 55,000 for-profit corporations. Response rate was 15.7%.


48

(3) SME strengths and innovationAs seen in (2), SMEs tackle the issue of creativity in

the workplace under the leadership of the management, and are particularly active in turning even small ideas into products and in cultivating niche markets.

The features of this kind of SME innovation can be thought to reflect the fact that they apply the strengths they possess as SMEs to realize innovation. The question of what the strengths of SMEs are will now be examined.

Figure 2-1-8 shows what the individual strengths of both large enterprises and SMEs are using the indicators based on the results of their self-evaluation in the Cre-ativity Questionnaire. According to this, SMEs mostly report their strengths as being in “the sense of unity and solidarity between management and staff, and different departments,” “the flexible capacity to respond in detail to individual needs” and a “fast and bold decision-making ability in management.” By making use of their small structure, they raise the level of teamwork, and demon-strate the flexibility to adapt quickly to new circumstances while the management makes agile judgments and takes leadership.

On the other hand, areas such as “demonstrating

economies of scale,” “an assortment of products and services covering a wealth of types” and “the capacity to procure necessary funds” are recognized as places where SMEs are lacking.

The previous Fig. 2-1-4 looked at the features of inno-vation by SMEs. Considering the relationship between this and their strengths, it can be seen that they cannot employ economies of scale, (or “scale merits”) and have weaknesses in their ability to procure funding. As such, it is difficult for SMEs to drive large-scale research and development forward. However, it can be assumed that they are striving to realize innovation through creativity with the management working together with the staff, forming a single unit while taking leadership.

It was previously seen that SMEs who are actively tackling research and development aimed at innovation tend to have high profit margins, (Fig. 2-1-2) and there exist some SMEs who have exercised that strength, and actually exceeded the profit margins of large companies. Fig. 2-1-9 shows the distribution of the ordinary profit ratio of large enterprises and SMEs based on MOF’s“Financial Statements Statistics of Corporations by Industry.”Onaverage,theordinaryprofitratioofSMEs

A business that has led in the innovation of a niche market2-1-5Based in Toyohashi City, Aichi Prefecture, and

with a workforce of 6 and capital of ¥3 million, Fine Molds Inc. is an SME developing, producing and selling detailed plastic models of World War Two era airplanes and warships, as well as airplanes and other models which have appeared in movies and Japanese anime. It has even been selected as one of the Ministry of Economy, Trade and Industry’s “300 of Japan’s Vibrant Monodzukuri (Manufactur-ing) SMEs, 2007.” The company’s main feature is its thorough dedication to careful recreation of the original. When developing a new product, if the model is to be of an actual item, as many materials as possible such as the item itself, photographs and design schematics are acquired, while if the model is to be of something fictional, the models used while filming, data on its setup and so on are requested. The plastic models based on these, created in the finest exacting detail, opened up a niche market.

In the case of a World War II era warship, for example, the company searched for the original blueprint and the control manual, then established a 700 to 1 scale compared to the original and care-fully recreated it right down to each individual furnishing, like machine guns and searchlights. In order to reproduce the cooling fins of war-ship machineguns with the highest precision, the company even introduced 3D laser processing equipment at a price equivalent to around 20% of annual turnover, showing that their dedication is such that they seemingly even disregard profit.

According to the president of Fine Molds, Kunihiro Suzuki, “It is important for us to work with things that we feel we would want for ourselves, things which do not exist elsewhere in the world.” He feels that if they release as products things that they themselves want from the bottom of their hearts, the customers will be pleasantly surprised that they will go so far as to make something like that, and this, he says, is how new markets are born. In the above example of the cooling fins of warship machineguns, they received high praise for putting them on the market, and this was reflected in good sales.

This way of thinking is praised not only by the cus-tomers, but also by makers in different fields. Fine Molds has developed figures representing characters designed by the famous comic artist Akira Toriyama from his comics such as “Dragon Ball,” as well as plastic models of the airplanes, space ships and so on which appear amongst other things in anime movies like “Porco Rosso (Kurenai no Buta)” (directed by Hayao Miyazaki), and sci-fi movies like “Star Wars” (directed by George Lucas). However, with these production companies which have copyrights and other such rights held on the works, the products have been achieved thanks to the praise the com-pany has received for its thorough dedication.

President Suzuki is confident about his com-pany’s unique technical capabilities saying “I want to release products which no other company in the world other than us is able to make. To use cars as an example, I want to make products like Ferrari.”

Case


49

Section 1

An SME which responded to a change in industrial centers by converting to the development and production of unique products

2-1-6

Based in Suwa City, Nagano Prefecture, with a workforce of 7 and capital of ¥10 million, Matsuichi Co., Ltd. is an SME whose specialties include the delicate cutting of brittle and hard to grind materi-als which are difficult to process. Founded in 1925 as a subcontractor for a major watchmaker with a base located in the Suwa region, it managed the assembly and processing work for watch compo-nents such as clock faces. However, it has utilized the delicate cutting technology cultivated through this work, and now develops and manufactures its own products. It has expanded its client base, and receives orders for the manufacture of trial prod-ucts from customers including researchers from universities and other companies.

The city of Suwa, where the company is situated, is one with a long history as an industrial center for manufacturing. After the war, the precision machinery industry thrived in areas such as watches and cameras, with a focus on major watchmakers. However, after the Plaza Accord of 1985, the yen grew significantly in strength, major watchmakers extended their mass production bases overseas, and factors such as this put a great strain on the industrial center in Suwa. The SME manufacturers

of the region had to work hard to reduce costs and strengthen their technical capabilities, among other things.

In this situation, Matsuichi continued the chal-lenge of delicate cutting of brittle and hard to grind materials which are difficult to process, (something which until then no other company was doing), and succeeded in developing their own ultra-precision machining equipment. The company’s technical capabilities in ultra-precision machining have received high praise from cutting-edge researchers who require their trial products to be manufactured to a high degree of precision, and orders have spread due to word-of-mouth. The praise has come for example, thanks to the fact that they made it possible to cut threads into screws and to carry out groove processing and 3D processing on brittle materials like quartz and sapphire.

Amid a greatly changing business climate, Matsuichi can be considered a success story, hav-ing managed to adapt to the new environment, applying the technical capacity it had accumulated as a subcontractor, and redirected its business from subcontracting to the development and manufac-ture of its own unique products.

Case

Fig. 2-1-8 Relative strengths and weaknesses of SMEs based on self-evaluationSMEs consider the sense of unity and solidarity between the management and staff, as well as detailed, fast and creative response to be their strengths

24% 22%18%

10% 8% 7%3%

0%

-7%

-18%-20% -21%

-39%

-50%

-40%

-30%

-20%

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10%

20%

30%

The

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Note: After categorizing the respondents into two groups, SMEs and large enterprises, the responses “excellent” and “rather good” for each item were added up and points distributed so that the total of the items amounted to 100% in each group. From this, for each item, {(the points for the SME group)/(the points for large enterprises)}-1 was calculated and items which scored high in this calculation are considered items that SMEs feel to be their relative strengths.


50

is lower than that of large enterprises, but among the top 12% of large enterprises and SMEs, the ordinary profit ratio of SMEs exceeds that of their large counterparts. It

can be said that SMEs which fully exhibit this strength are raising their performance to a level which outdoes even large enterprises.

Fig. 2-1-9 Distribution of ratio of ordinary profits to sales by company scaleIn the top 12%, the ratio of ordinary profits to sales of SMEs exceeds that of their large counterparts

Source: Recompiled from MOF, Financial Statements Statistics of Corporations by Industry.Notes: 1. Figures or data from FY2007. 2. Percentile n shows, counting from the lowest rankings of the ratio of ordinary profits to sales, the group of companies

that are positioned within the range of [low range (n-1)% or more to under n%] within the total ranking. Here, the range is 4≤n≤97.

-50

-40

-30

-20

-10

0

10

20

30

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Percentile


Rat

io o

f ord

inar

y p

rofit

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)

In the post-war period of recovery, manufacturers such as Sony Corporation and Honda Motor Co., Ltd. were founded as SMEs, then in the period of high and stable growth, service businesses such as Secom Co., Ltd. which responded to the new needs of society also flourished. Today, there is a mul-titude of cases of innovation brought about by SMEs among the products and services which have become firmly rooted in our daily lives. This column will introduce some representative examples.

<Examples>Sony Corporation: Transistor radios and personal stereos >With a workforce of 180,500 and turnover of ¥8.8714 trillion *1, Sony Corporation was founded

in 1946 as Tokyo Tsushin Kogyo K.K., with capital of ¥190,000 and a staff of approximately 20. With its strong willingness to challenge the norm and “do what has never been done before” it developed a number of Japan-first and world-first products such as small transistor radios and a personal stereo, the “Walkman,” establishing the “SONY” brand throughout the world.

Honda Motor Co., Ltd.: Two-wheeled vehicles, the “Super Cub” >With a workforce of 178,960 and turnover of ¥12.28 trillion *2, Honda Motor Co., Ltd. was founded

in 1948, beginning its business by manufacturing auxiliary engines for automobiles. It then joined the two-wheeled vehicle market, and produced a succession of hit products such as its long-selling “Super Cub.” In the 1960s it also entered the four-wheeled vehicle market, and has since grown into a global company, with its business having expanded into every country of the world.

Secom Co., Ltd.: Security services >With a workforce of 47,018 and turnover of ¥682.6 billion *3, Secom Co., Ltd. was established in

1962 as Nihon Keibi Hosho, the first security company in Japan. The Japanese word used for “secu-rity” in the original name of the company, is now widely applied with the meaning of contracting

Column 2-1-1 Innovations by SMEs which represent the history of the industry


51

Section 1

to guard against problems such as fire and burglary, and a system to compensate for losses if an accident occurs. Originally though, when the company was first established, it was a newly coined word in the Japanese language that incorporate the dual meanings of “guarantee” from the term meaning “guarantee of safety” and “compensation” from “compensation for losses.” The company has grown since then by leaps and bounds, using opportunities such as guarding the Olympic Village for the Tokyo Olympics (1964) and the television drama “The Guardman” (1965), and is now a major enterprise, with contracts concluded with around 800,000 offices and around 400,000 households across the group.

Meiko Shokai Co., Ltd: Shredders >With a workforce of 280 (nonconsolidated) and capital of ¥3.51 billion, Meiko Shokai Co., Ltd.

is the company that in 1960 developed the world’s first shredder. At first, the company was an SME which sold developing fluid, but once it became aware of the problem that “before long, we will enter a period in which it will be difficult for companies to keep confidential materials safe,” the theory of the shredder came in a flash of inspiration. It was in a stand-up noodle bar that the idea that “if paper can also be cut into long fine strips like noodles, it will be impossible to read” presented itself, and the shredder was born. Since then, understanding in society towards the management of confidential information has grown and demand for shredders has increased. Today, Meiko Shokai is active as the top shredder company, able to boast that its products are even used by the U.S. Department of Defense; with its motto being “from national confidential-ity, to secrets of the heart.”

Toyo Jidoki Co., Ltd.: Automated filling and packing machine for “retort curry” >Based in Minato City, Tokyo, with a workforce of 188 and capital of ¥245 million, Toyo Jidoki

Co., Ltd. is an SME that works to develop, produce and sell products including automated weighing machines and all kinds of packing machines. It develops automated filling and packing machines for retort (vacuum-packed) foods, and was involved in the development of Japan’s first retort curry, sold nationwide in 1969. In recent years it has also been able to boast a large share in the market of filling and packing machines for a new type of packaging with a stopper attached, called a liquid jelly spout.

Suzumo Machinery Co., Ltd.: Sushi robot >Based in Nerima City, Tokyo, with a workforce of 235 and capital of ¥571.2 million, Suzumo

Machinery Co., Ltd. is a company that is active in the production and sale of rice processing machines such as the “sushi robot.” Using the country’s policy of reducing rice acreage as an opportunity, the company determined to vitalize Japan’s rice culture, and launched into the development of rice processing machines in 1977, succeeding in 1981 in developing the country’s first sushi robot. In 1987, together with a major hamburger chain, it also managed to turn the idea of the “rice burger” into a product.

Today, the company has taken “spreading the rice eating culture to the world” as its corporate phi-losophy, and is working to expand globally, repeatedly showing its level of creativity by, for example, customizing its rice processing machines to match the food tastes of each individual country.

Sokuhai Co., Ltd.: Motorbike delivery >With a workforce of 197 and capital of ¥118.5 million, Sokuhai Co., Ltd. is an SME which provides

motorbike delivery services, express courier services using two-wheeled vehicles. The idea came in a flash in 1982 after seeing messengers in New York (couriers who used bicycles), and Japan’s first motorbike delivery business was started. Tokyo differs from New York in that its business districts are scattered in a number of places around the city, like Marunouchi, Shinjuku and Shinagawa, and so they thought it more appropriate to use motorbikes than bicycles. Since motorbike delivery enables the rapid delivery of documents and other materials, even in heavy traffic, it has become firmly established as an indispensable service for modern business where speed is of the essence.

*1 Consolidated number of employees as of 31 March 2008, and consolidated net sales in fiscal 2007. From the Sony Corporation homepage (http://www.sony.co.jp/SonyInfo/CorporateInfo/)

*2 Consolidated number of employees and sales as of the fiscal year ending March 2008. From the Honda Motor Co., Ltd. homepage (http://www.honda.co.jp/guide/corporate-profile/index.html#consolidated).

*3 Number of staff across the whole of Secom Group as of 31 March 2008, and consolidated net sales for the fiscal year ending March 2008. From the Secom Co., Ltd. Homepage (http://www.secom.co.jp/corporate/outline/about.html).

<References>The Nikkan Kogyo Shimbun, Ltd., An Encyclopedia of the History of Everyday Products (2002);

2003 White Paper on Small and Medium Enterprises in Japan


52

3. Challenges in aiming for innovation

As seen above, SMEs are endeavoring to realize inno-vation by making use of their strengths, but what kind of challenges are they facing along the way?

Fig. 2-1-10 [1] shows the challenges which exist in companies actively pursuing innovation. In addition to the problem in management strategy of “the strategy and vision behind activities was not clear,” challenges which were raised frequently included securing personnel and procuring funds. Fig. 2-1-10 [2] shows the reasons given by SMEs which are not implementing efforts towards innovation as to why this is the case, and it is apparent that

more than half of the SMEs are not implementing such activities because although they felt innovation to be nec-essary, problems in areas such as management strategy, securing personnel and procuring funds were obstacles.

Consultation from experts (beginning with SME man-agement consultants), advice from financial institutions and other such support is thought to be important when SMEs draft management strategies and business plans aiming to realize innovation, and procure the necessary personnel and funds. The government is also implement-ing measures to support the efforts of SMEs aimed at management reform, and the application of these appears to be effective.7)

0%

SMEs

We do not feel the need to do this, from the economic trendWe cannot secure adequate funds

We do not feel the need to do this, from the characteristics of the market

25%25% 17%17% 11%11% 14%14% 33%33%

1% 0%

1% 1%

1%

0%

0% 100%

100%

SMEs

Largeenterprises

Securing and maintaining adequate personnel was difficultThe strategy and vision behind activities was not clear

Motivating staff (maintaining motivation) was difficult Procuring funds was difficult

Not enough equipment and facilitiesThe organization structure was not flexible

Not enough market informationNot enough technological information

We were not able to utilize external personnel, facilities, and funds well There was an increase in market uncertainty

Regulations and entry barriers got in the wayThe market was mature

Other

We cannot secure adequate personnelThe strategy and vision behind the activities are not in place

13%13%

22%22%

28%28%

22%22%

11%11%

12%12%

18%18%

9%9%

4%4%

9%9%

4%4%

12%12%

2%2%

[1] Challenges faced by companies pursuing innovation

[2] Reasons for SMEs not implementing efforts towards innovation

4%4%

6%6% 8%8%3%3%

3%3%6%6%

Fig. 2-1-10 Challenges in the realization of innovationSecuring personnel, procuring funds and management strategies are some of the challenges faced in activities to pursue innovation


Notes: 1. For [1], in order to compare large enterprises and SMEs, the numbers of responses for each item (multiple responses allowed) were totaled and distributed proportionally among each item so that the total of the items amounted to 100%.

2. For [2], blank responses were not counted.

7) BasedontheLawforFacilitatingNewBusinessActivitiesofSmallandMediumEnterprises(LawNo.18,1999),individualSMEs,unionsand other groups draw up business innovation plans, and when they are approved by the national or prefectural government, they can obtain financingandtaxation-relatedsupportfromthegovernment.Sofar,35,550businessinnovationplanshavebeenapproved(asoftheendofJanuary 2009), and it is thought that a great number of SMEs are enthusiastically tackling a diverse range of innovation activities as a result.


53

Section 1

4. The role of SMEs in economic growth

So far, the current situation and challenges which exist with regard to the efforts of SMEs aimed at innovation have been examined. Next will be a look at the question of the kind of roles SMEs are playing from a wider per-spective, in relation to the economic growth of Japan and innovation in growth industries.

(1) The role of SMEs in economic growthFig. 2-1-11 shows changes in the value added by Japa-

nese corporations, and the proportion of the applicable value added by SMEs (corporate enterprises). From this information, it can be determined that for a long period, from 1960 until the present, SMEs have been responsible just over 50% of value added.

Fig. 2-1-12 shows the growth rate of the value added by SMEs, and the main causes.8) Increases in value added, that is to say economic growth, are realized due to increases in the input of capital and labor, and a rise in total factor productivity (TFP), so the contribution of innovation to economic growth is reflected in the rise in TFP. However, due to the limitations of the data in this figure, in relation to investment in labor and capital, TFP is calculated without considering factors such as work-ing hours, increased abilities of workers and equipment

utilization rates. It is therefore necessary to take a consid-erably wider perspective when looking at this informa-tion. Nevertheless, it can be seen that with the exception of the 1990s, the rise in the TFP of SMEs has contributed significantly to value added.

The contribution of SMEs to the rate of growth in valueaddedbyJapanesecorporationshasbeen40.3% 9) in the 2000s, so it is clear that they play a large role in economic growth as well.

(2) The role of SMEs in growth industries such as the environmental, biotechnology and IT industries

The role of SMEs in the value added by the Japanese economy and in economic growth has been examined thus far. Attention will be turned here to areas such as the environment, biotechnology and IT as examples of growth industries, and a look at the roles SMEs are play-ing in each of these sectors will be taken.

[1] The environmental industryWhat kind of role are SMEs playing in the environ-

mentalindustry?FirstwillbealookatFig.2-1-13whichshows the situation regarding efforts of SMEs aimed at the development and sale of products and services which give consideration to the environment. It can be seen that

8) Here, the rate of growth in value added has been estimated simply, primarily using “Financial Statements Statistics of Corporations by Indus-try,” and as such the contribution of unincorporated enterprises which were not surveyed, and the effects of factors such as working hours and capacity utilization rates were omitted. For this reason, it does not agree with the growth in GDP which is generally used as an indicator of growth in value added in the Japanese economy (Appended note 2-1-1).

9) The contribution of large enterprises (corporations) accounts for the remaining 59.7%. For information regarding the rate of growth in value added by large enterprises, and an analysis of their contribution, see Appended note 2-1-2.

Fig. 2-1-11 Changes in value added by SMEsThe share of value added by SMEs has remained at a stable level of 50-60%

Source: MOF, Financial Statements Statistics of Corporations by Industry.Notes: 1. Enterprises with capital of less than ¥100 million are defined as SMEs and enterprises with capital of ¥100 million or

more are defined as large enterprises. 2. Value added is shown in real terms using the year 2000 as a base year.

53%50%

53%

59% 58% 58%56% 57%

55%

0

50

100

150

200

250

300

350

0%

10%

20%

30%

40%

50%

60%

70%

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

15151717

111111

142142

150150

168168

7171

9898

5353

7575

8181

113113

2424

2424

4545

5151

(¥1 trillion)

53%53% 53%53%


124124

154154

116116

156156

(Fiscal year)

Share of SMEs

143143

163163


54

some SMEs have already been addressing the develop-ment and sale of products and services with consideration to the environment, but in the future, many more are planning to begin work in this area.

In addition to increases in environmental awareness among consumers and the strengthening of environmen-tal regulations, many companies, especially large enter-prises, actively try to develop new technology such as fuel cells, while “green procurement,”10) which prioritizes the procurement of parts and materials with a small environ-mental impact, is also expanding. As a result, SMEs are also thought to be actively working to develop various environmentally friendly products and services.

For example, although environmental equipment used to be made mainly on a build-to-order basis, there has been a sea change in perception that what clients want is not “equipment,” but “services” in the form of envi-ronmental measures. As such, cases can be seen where a business has changed direction to the supply of services such as equipment maintenance so that the effects of environmental measures can be maximized (a type of

Fig. 2-1-12 Growth rate of value added by SMEs and the contribution of capital, labor and TFPSMEs have also contributed approximately 40-50% to the growth rate of value added

Source: MOF, Financial Statements Statistics of Corporations by Industry.Notes: 1. Rate of TFP rise = percent of value added increase - capital allocation ratio × rate of increase of tangible fixed assets

(excluding land and construction in progress) - labor allocation ratio × growth rate of total number of employees (executives × employees).

2. Enterprises with capital of less than ¥100 million are defined as SMEs and enterprises with capital of ¥100 million or more are defined as large enterprises.

3. Value added is shown in real terms using the year 2000 as a base year and the growth rate is calculated from this. 4. For these measurements, business cycle factors should have been excluded taking into consideration operation rates

and working hours. However, as statistics for these by company scale were unavailable, these factors were ignored.

-0.1

50.8

63.6

56.3

40.7 40.3

-5

0

5

10

15

1960s 1970s 1980s 1990s 2000s

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Capital injection (SMEs) Labor injection (SMEs) TFP (SMEs)

Percentage of contribution by SMEs (scale on the right)

(%)

(%)

4.74.72.32.3

1.31.3 1.0 1.0

2.92.9

2.72.7

1.71.7 0.9 0.9

0.7 0.7

4.44.4

2.52.5

1.01.0

-1.3-1.3

1.2 1.2

Grow

th o

f val

ue a

dded

Fig. 2-1-13 Situation of the development and sale of products and services which give consideration to the environment by SMEsMore and more SMEs are planning to address the development and sale of products and services which give consideration to the environment

Source: Shoko Chukin Bank, Survey of SME efforts in environmental issues (September 2008).

Note: Survey of about 9,000 SMEs who are clients of the Shoko Chukin Bank. The response rate was about 47% and the date of the survey was 15 July, 2008.

0% 100%

Planning to work in this area in the

future

Currently working in

this area

Yes No

25%25%

17%17%

76%76%

84%84%

10) According to Nikkei Inc.’s 7th Environmental Management Ranking Survey(2003),58.6%ofthe3,926companiessurveyedhavesettheirown criteria for green procurement. Green procurement criteria are focused on two main areas, (1) standards relating to parts and materials, and (2) the standards for environmental management of the companies supplied to. Subcontracted SMEs are expected not only to have plans formaterials,designsandproductionmethods,butarealsorequestedtomakeeffortsinmanagement,forexample,byobtainingISO14001certification, the international environmental management standard.


55

Section 1

environmental service that has developed called “servi-cizing,”11) see Case 2-1-7).

As a type of process innovation by SMEs, there are high expectations for their work in areas such as energy conservation in factories and other premises. As was showninFig.1-3-23inChapter1,theequipment-relatedefforts of SMEs, which include the switch to energy saving models, are weak compared to their efforts in operations, such as turning off lights. The reason for this is frequently cited by SMEs as “insufficient funding.” The domestic credit system 12)whichbeganinOctober2008promotesefforts relating to areas such as energy conservation, with large enterprises providing SMEs with funding, technol-ogy and other resources. It is hoped that this system will

be applied further in the future.

[2] The biotechnology industryNext will be a look at the biotechnology industry.

Fig. 2-1-14 shows the annual value of shipments for each product area, of biotechnology-related products,13) from MEXT, MHLW, the Ministry of Agriculture, Forestryand Fisheries (MAFF), and METI’s Survey of the Bio Industry 2007 (March 2008). According to this figure, the fields in which the ratio of the value of shipments by SMEs to the overall value of shipments is highest in research samples and reagents, research and manufac-turing equipment, services, data processing, livestock, and aquaculture-related, while fields in which the ratio

An enterprise which has achieved innovation in the environmental industry2-1-7

Based in Kitakyushu City, Fukuoka Prefecture, with a workforce of 9 and capital of ¥35 million, the Merry Corporation is an SME which has estab-lished a food recycling system using a professional garbage disposal rental operation.

The company originally targeted the food service industry, selling professional garbage disposal units for business. At the time, however, despite spend-ing a fair amount on garbage disposal, companies in the food service industry were simply not buying garbage disposal units due to their high price. As a result, in 2004, the president of the Merry Corpo-ration, Yasushi Matsuo, changed the direction of the business and began renting out the company’s own disposal equipment at a cheaper price than the expenses already being incurred for garbage disposal by companies in the industry.

The Merry Corporation’s system is as follows. First, it sets up a garbage disposal unit at the premises of its food service industry customer. The customer then puts its food and other leftovers into the unit on a daily basis. The leftovers in the unit undergo fermentation and decomposition by microorganisms, and consolidate on the bottom with a reduced volume forming a “fermentation/decomposition bed,” giving off no foul smell in the process. The Merry Corporation collects the

fermentation/decomposition bed from the disposal unit twice yearly, and uses it as a basis for making compost, which it then sells to contracted farmers in the region. Those contracted farmers use the com-post to grow organic vegetables, which are then harvested and sold back to the food service indus-try customers via the company. The main feature of the Merry Corporation is the fact that it differs from businesses which simply sell garbage disposal units: it gives the end customers a sense of being in an ongoing loop of recycling by providing organic vegetables for the industry. As social awareness toward environmental problems grows, in order to further promote the “visibility” of eco-friendliness, the Merry Corporation is positively expanding its activities such as planning tours of organic farmers, and implementing Life Cycle Assessment (LCA – see below) in cooperation with Professor Toru Matsu-moto of The University of Kitakyushu.

(Note)

LCA is a method of quantitatively evaluating the resources invested and environmental impact in the lifecycle of a product from its manufacture through to disposal, and the environmental effects on the earth and ecosystem that this results in.

Case

11) A new business model based on the concept that rather than recycling products which are discarded once, the way to raise environmental efficiency and economic efficiency in the life cycle of the product is for manufacturers and distributors to provide the client with just the functions and services of a product, while retaining ownership of it.

12) The domestic credit system is a mechanism stipulated in the Kyoto Protocol Target Achievement Plan (given Cabinet approval on March 28, 2008) for certifying the amount of carbon dioxide emissions reduction achieved from efforts carried out by SMEs who have been provided with the technology and funds of their large counterparts to do so. The system can then be used to achieve the targets of their own individual action plans. It is not restricted to SMEs, however. As a system for promoting the reduction of emissions across a wide range of fields including agriculture and the various services, it is planned to be applied further still in the future. By the end of March 2009, a total of 12 emissions reduction projects had been applied for.

13) Biotechnologyisthenamegiventotechnologywhichtakesthevariousactionsoflivingcreaturesandmakesuseofthemtoenhanceoureveryday life and environmental conservation. Before modern times, it was used in the manufacture of fermented foods such as alcohol, miso, cheeseandyoghurt.Then,in1972,cellfusiontechnology,andin1973generecombinationtechnologyweredeveloped,andtheseadvancedareas of science and technology ended up being applied in industry. The former is sometimes referred to as “old biotechnology,” while the latter is referred to as “new biotechnology.”


56

An enterprise which is contributing to solving the problem of sick house syndrome2-1-8

Based in Sendai City, Miyagi Prefecture, with a workforce of 17 and capital of ¥10 million, Higashi SSS Corporation is an SME working in the research and development of products such as coating agents for flooring. Coating agents give a gloss to the surface of flooring in homes and other build-ings. They are liquid formulations for protecting the floor from external irritations, and are used on furniture, building materials and floors.

Since coating agents include volatile organic compounds (VOCs), they are specified as one of the leading causes of “sick house syndrome” resulting in headaches, stuffy noses and sore throats in cer-tain people. As a result, the company tackled the research and development of new coating agents with the goal of resolving this problem, and in 2000 succeeded in the development of “Floor Manicure Eco,” a coating agent which dramatically restricted the amount of VOCs and other problematic com-pounds dispersed from them. This grew into the company’s leading product, as concern in society toward sick house syndrome increased.

The president of Higashi SSS, Yoshimasa Sato says “The strength of our research and develop-ment lies in human relationships.” Mr. Sato gained experience working as a sales representative for a pharmaceutical firm prior to founding the

company, and by exploiting the fundamental knowledge of chemistry required to work in such a company, together with the facility in communica-tion and footwork gained by being a salesman, he built up a diverse network of personal contacts. In particular, the joint research he engaged in with Professor Shinichi Tanabe of Waseda University studying VOCs served as the basis of the company’s strong technical capacity.

At present, the company is working to develop a new product which further restricts the amount of chemicals dispersed to approximately 1% of traditional products. The development of this new product will not only contribute to measures against sick house syndrome, but has also brought the cultivation of new markets into view, with its potential for use in art galleries and museums. It has been shown that paintings and other works of art deteriorate as a result of certain chemicals, (ammonia, organic acids, etc.) so until now, it has not been possible to use coating agents in art gal-leries and museums. However, once this new prod-uct is developed, the possibility will arise of its use being accepted even in these places. Mr. Sato says “My dream is to have our coating agents covering the Louvre Museum in Paris.”

Case

A university-launched “bio-venture” which focused on its specialist technological area and succeeded in acquiring a large-scale license overseas

2-1-9

Based in Sapporo City, Hokkaido, with a work-force of 11 and capital of ¥221.596 million, Evec Incorporated is a university-launched venture, established in January 2003 as a result of Professor Kenzo Takada of the Hokkaido University Institute for Genetic Medicine making use of the results he accumulated over his many years of research into the Epstein-Barr virus (a virus with the ability to cause unlimited multiplication of B lymphocytes, which produce antibodies in the human body). This unique technology using the Epstein-Barr virus, for which a patent has been obtained, is the company’s strength. It creates fully human antibodies originating from people, which differ from antibodies originating from other animals, being side effect-free and safe. Since it does not rely on any antibody production technology from overseas or on related patents, it is drawing high hopes and much interest as a purely homegrown, made-in-Japan technology.

In September 2008, an exclusive licensing agree-ment was concluded for the patent on one of the completely human antibody programs for treat-ment purposes developed by Evec, with one of Germany’s major pharmaceutical companies, Boeh-ringer-Ingelheim GmbH, whose name is among the

world’s top 20. As a result, the company received a lump-sum of 55 million Euros and a financial reward corresponding to the development stage. Furthermore, after Boehringer-Ingelheim puts the product on sale, it will be able to receive royalties according to sales performance. This was an excep-tionally large contract to be established in terms of Japanese bio-ventures.

President of Evec Hisato Doi also runs the startup support company, Human Capital Management Inc. (Sapporo). By combining the management strategies and marketing knowledge of Mr. Doi with the medical technology focused on Hokkaido University’s Professor Kenzo Takada they succeeded in getting the ball rolling for the business. With conviction in the ideas that “small and medium venture enterprises can work together with major companies, taking a single strong item and trying hard,” and “even if the market is small, you can be powerful if you are original,” Mr. Doi says “I hope to become the Intel or Windows of the pharma-ceutical world, by specializing in the technological area where we are strongest, ‘the creation of fully human antibodies’.”

Case


57

Section 1

of the value of shipments by SMEs is low are chemical products, agriculture and bioelectronics.14) In fields where products are produced in mass quantities for industry and the consumer, such as chemical products, although the SME ratio is low in the field itself, they can be considered as active in the support areas of research samples and reagents and data processing, which back up research and development activities in the biotechnology industry.

[3] The IT industryFinally a look will be taken at the IT industry. First,

though, will be a quick review of the history of the IT industry so far, based on Fig. 2-1-15. In the 1960s, the customized development of software began in order to create industrial control systems and business systems for mainframes. In the 1980s, amid the spread, falling costs and a rapid explosion in demand for computers, competi-tion became fierce, with increasing numbers of compa-nies joining the market. As a result, the outsourcing of work progressed, and large enterprises that served as the main contractors and a series of related groups of SMEs

came to be formed. Since the 1990s, together with further decreases in the size of computers and the spread of the internet, SMEs have diversified their transactions. For example, SMEs who had been responsible for subcontract-ing work ended up taking orders directly from end-users (becoming main contractors), and developed original softwarepackages.In2006, therewere14,613softwarefirms,ofwhich94.9%,or13,870,wereSMEs.15)

Lookingatthesalesofsoftwaredevelopers,althoughthe ratio accounted for by sales of SMEs with workforces oflessthan300was36%in2007,whichwasadecreasecompared to 1995,16) the role of SMEs remains significant (Fig. 2-1-16).

In addition to the above three industries, SMEs are active with regard to innovation in many other industries and fields. For example, there has been much activity involving SMEs entering the field of medicine and wel-fare, and examining the business start-up rate based on MIC’s Establishment and Enterprise Census of Japan, it can be seen that the annual average from 2004 to 2006 in all non-primary industries was 6.4%, while in medicine

Fig. 2-1-14 Positioning of SMEs in the biotechnology industryThe percentage of SMEs in areas such as research samples and reagents, and data processing is high

Source: MEXT, MHLW, MAFF, and METI, Fiscal 2007 report on the basic survey for the creation of biotechnology industries (March 2008).

Notes: 1. The survey was conducted targeting 1,819 companies chosen from METI’s Basic Survey of Japanese Business Structure and Activities roster, the Japan Bioindustry Association roster, the Japan Biological Informatics Consortium roster, the Society for Techno-innovation of Agriculture, Forestry and Fisheries roster, Statistics on Bio Ventures and others, and the annual value of shipment of domestically produced biotechnology related products was estimated from this.

2. For the retail and restaurant industries, enterprises with capital of ¥100 million or less or with 100 employees or less are defined as SMEs. For other industries, companies that fit the definition in the Small and Medium Enterprise Basic Law are considered SMEs.

7,021

4,436

850534

1097 20 18 1 272 1 30

39486 42 31 20 76 120 109 4 238

8127 235

7.8

21.3

3.1

22.2

49.5

98.5

27.6

48.157.9

6.6

5.113.0

37.8

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Entir

e bi

otec

hnolo

gy in

dust

ry

Food

s

Othe

r foo

dsAg

ricul

ture

-relat

edLiv

esto

ck a

nd

fish

eries

-relat

ed

Med

icine

and

oth

ers

Rese

arch

sam

ples

and

reag

ents

Fiber

and

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r p

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l p

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cts

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nics

Envir

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t

and

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ities

Rese

arch

and

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cts

Data

pro

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ing

Serv

ices

Annu

al v

alue

of s

hipm

ents

of d

omes

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ly

prod

uced

bio

tech

nolo

gy-r

elat

ed p

rodu

cts

0%

20%

40%

60%

80%

100%Total SMEs SME ratio

(¥1 billion)

1,8291,829

1,1181,118

26.126.1

25.225.2

18154

14) Specifically, research samples and reagents include things like reagents for genetic engineering; research and manufacturing equipment include things like fermentation and separation and refinement equipment; services include things like experiments and testing; data process-ing include things like analysis software; livestock and aquaculture-related include things like vaccines and feed; chemical products include things like cosmetics, detergents and materials for manufacturing; agriculture includes things like mushrooms; and bioelectronics includes things like medical sensors.

15) Recompiled from MIC’s Establishment and Enterprise Census of Japan (2006). Total of figures on companies and sole proprietorships (inde-pendent offices and head offices), in “391 Computer Programming and Other Software Services” from the MIC Japan Standard Industrial Classification (revised March 2002).

16) Behind this are a number of factors. Since the 1990s, large enterprises which have a great capacity to accept orders have appeared, direct dealings between large enterprises has intensified and so on.


58

andwelfareitwashighatanaverageof10.3%.Despitethe fact that the overall number of SMEs is decreasing, the number of them in the field of medicine and welfare actually increased, from 179,000 in 2004 to 189,000 in 2006. As in Case 1-3-6 in the previous chapter, andCase 2-1-11, SMEs play an important role in this area, with their developing new products which contribute to development in medicine and welfare.17)

5. Current situation and challenges in research and development

As already seen, a variety of efforts are involved in activities by SMEs for the purpose of realizing innova-tion, such as the leadership exerted by the management, research and development, and marketing activities. Here, attention will be focused on research and develop-ment(R&D)activities,whicharemostoftenemphasizedin discussions about innovation. As well as looking at the current situation regarding these activities by SMEs, the challenges which they face while working in this area will be considered.

(1) The current situation regarding research and development by SMEs

First will be a look at the actual state of affairs regard-ingR&DactivitiesbySMEs,whilecomparing themto

large enterprises and the situation in the U.S.

[1] Ratio of enterprises engaged in research and development

Fig. 2-1-17 shows the percentage of SMEs engaged in research and development, according to the SME Agen-cy’s Basic Survey of Small and Medium Enterprises.Ofall SMEs, the ratio of those implementing research and development is small at just 1.4%, but for SMEs operating in the manufacturing, information and communications, and wholesale trade industries, the ratio is relatively high. In the manufacturing and wholesale trade industries, the ratio of corporations is larger than that of unincor-porated enterprises, and among corporations, the larger the employee size of the enterprise, the larger the ratio implementing research and development. Meanwhile, in the information and communications industry, the ratio of enterprises implementing research and development is highest in companies with a workforce of from 6 to 20 people, showing that even small-scale enterprises are actively engaging in research and development. This can be seen to reflect the situation in the information and com-munications industry, that innovation is being actively realizedhereinparticular,asseenin4.(2)[3].

Fig. 2-1-18 shows the ratio of implementation of research and development in SMEs from the MIC’s Survey of Research and Development, in combination

An enterprise which achieved innovation in the IT industry2-1-10Based in Sendai City, Miyagi Prefecture, with a

workforce of 17 and capital of ¥52 million, Cyber Solutions Inc. is an SME, founded in 1997, that carries out the development and sale of products and services relating to intranet security. As many as 13 of the 17 employees are engineers, and the company places specific emphasis on research and development based on their high-level expertise.

The importance of security on the Internet has been stressed for some time, and many companies are working in this area. However, Cyber Solutions believes “many more types of network dangers exist internally than from outside” and since early on it has focused its efforts on the security of intra-nets, the internal networks of businesses, rather than external networks using the Internet. When analyzing examples of accidents occurring in areas such as the information leaks from networks, it saw an extremely large number of cases of the whole network being infected with a computer virus due to staff in the company bringing in unauthorized software.

In order to deal with this kind of problem, in

2002, the company developed a product with the ability to cooperate with computer virus detection systems while also detecting unauthorized termi-nals and software in order to control information leaks on the intranet. This grew into their current leading product “NetSkateKoban.” In 2005, the Act on the Protection of Personal Information (Act No. 57 of 2003) was enacted, and there was an increase in interest in the company’s products. As such, “NetSkateKoban” was adopted by over 100 companies including some major power utili-ties, and is used in a variety of business types from manufacturing to services.

Now, with competitors including some large enterprises joining the field of intranet security in quick succession, it has become a market where the company has heavy competition. However, armed with the technological strength that has come from pioneering work in this field, and the detailed manner of dealing with clients that it is capable of as a result of being an SME, Cyber Solutions Inc. will continue to run at the forefront of the market, ranking together with its larger counterparts.

Case

17) Forinformationregardingthestart-upratesandclosureratesofbusinessestablishments,seeFig.3-1-13onp.145ofthe2008 White Paper on Small and Medium Enterprises in Japan. In Case 2-2-7 on p. 76 of the same white paper, with regard to increasing the productivity of small and medium services, an SME making efforts to improve the quality and reliability of its nursery services was introduced.


59

Section 1

Fig. 2-1-15 Changes in the business structure of the software development industrySince the 1990s, SMEs involved in software development have diversified their transactions

Source: Compiled from Japan Finance Corporation for Small and Medium Enterprise (the current Japan Finance Corporation) Research Institute, Current State and Future Direction of Small and Medium Information Services Industry (May 2008).

1960-1970s<<The mainframe era>>

Transactions among specific companies

Multilayered transactions/enclosed transactions Diversification of transactions and generation of new business

End-users (large enterprises)

End user (large enterprises)

End user (individuals)



End-users (SMEs)

Large enterprises

Large enterprises

Large enterprises

Large enterprises

SMEs SMEs

SMEs SMEs

SMEs SMEs SMEs

SMEs

SMEs SMEs SMEs

Order placed

Order received

Original contractor

Network and other services for individuals

New businesses such as those utilizing the Web for businesses and digital contents

Internet contents, Internet adds and others

Diversification of transactions

Transactions as main contractor

Software development for SMEs

Sub contractor

Transactions as main contractor

1980s<<Spread of personal computers>>

1990s-<<Era of open network environments and networked computers>>

System development for •businesses starts from the development and implementation of mainframe computers.

Major domestic companies •enter the market aiming to catch up to the overseas companies.

Specific major companies •consistently conduct development to order for specific users that are responsible for information infrastructure.

Rapid expansion of demand for •data processing centering around large enterprises amid the spread of personal computers.

Outsourcing advances based •on the modularization, decentralization and man-month man-hour principles.

As competition among •companies escalates, transaction structures become more multilayered in order to create a more efficient mass production development structure.

From the 1990s, with the spread of information infrastructure such as personal computers •and the Internet, miniaturization, digitalization and networking advance. Open network environments for infrastructure software for software development advances as well.

The trend of open network environments, enclosed transactions within affiliated companies •become diluted and transactions become diversified.

As the Internet spreads, the demand for data processing expands, not only for large •enterprises, but for SMEs as well. Development demand for software for business is generated on various scales.

As demand increases, enterprises that had up until then specialized in sub-contracting start •main contracting transactions.

New types of software businesses such as SaaS and ASP services, business utilizing the Web such as for Internet security software, and the creation of content for mobile phones.

Fig. 2-1-16 Changes in sales of software developers by company scaleIn 2007, companies with workforce sizes of less than 300 accounted for 36% of total sales

7.47.4 8.98.9 4.44.4 7.37.3

14.714.718.618.6

11.211.212.512.5

22.422.4

26.326.3

15.615.616.216.2

15.315.3

11.311.3

8.78.79.59.5

40.240.2 34.934.9

60.260.254.554.5

0

20

40

60

80

100

07050095

Up to 29 employees 30-99 employees 100-299 employees 300-499 employees 500 or more employees(%)

(Year)

Source: METI, Survey of Selected Service Industries.


60

An SME which developed a new product that is contributing to medical development2-1-11

Based in Sendai City, Miyagi Prefecture, with a workforce of 4 and capital of ¥16 million, I.T. Research Co., Ltd. is an SME which despite its work-ers numbering just four, developed a new product which is contributing to medical development using photoelectric measuring and other technologies.

The company developed a product known as the “Intelligent Calorie Counter” which accurately records a person’s daily calorie expenditure.

Even with traditional pedometers it is possible to make a rough estimate of calorie expenditure, but they are unable to make the distinction between climbing and descending slopes or stairs and walk-ing on level ground. Since the calorie expenditure differs greatly between climbing stairs and walking on flat ground, it is impossible to make an accurate calculation of calorie expenditure. At medical insti-tutions, careful health management is often neces-sary in the treatment of heart disease, diabetes and other conditions, and there had been calls for the development of equipment capable of accurately

grasping calorie expenditure, for some time.The “Intelligent Calorie Counter” was devel-

oped to respond to these requests. It is equipped with a three-dimensional acceleration sensor and an elevation sensor (atmospheric pressure sensor), and is able to accurately calculate the calorie expen-diture in a day, by classifying activities in daily life into nine types including climbing and descending stairs. The high level of precision has already been praised, and I.T. Research is now working together with the medical equipment manufacturer Nipro Corporation, selling the product as “Welsupport” (a daily activity recorder).

The president of the company Sohei Kawabata aims to develop this further, saying “In the future, I want to make use of its ability to accurately mea-sure exercise intensity and calorie expenditure, and apply this more broadly, rather than restrict its use to medical practice, by collecting data on the train-ing of athletes for example.”

Case

1.4 0.9

5.46.9

0.2

2.9

0.4 0.4 1.3

5.1

0.4 0.2 0.40.4 0.21.21.0

3.1

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0.6 0.21.0 1.0

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4.6

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2.3

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5.6

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7.4

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12.8

30.9

0.7

10.5

3.20.9

5.5

2.31.71.3

3.1

5.77.5

0

5

10

15

20

25

30

35

(%)

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Up to

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All industries

Corporations Corporations Corporations Corporations Corporations Corporations Corporations Corporations Corporations Corporations

Construction Manufacturing Information and communications

Transport Wholesale Retail Real estate Restaurants/Accommodation

Services

0.60.6

Fig. 2-1-17 Percentage of SMEs engaged in research and development for new products and technologiesIn the information and communications industry, the percentage of enterprises implementing research and development is highest in companies with a workforce of from 6 to 20 employees

Source: SME Agency, Basic Survey of Small and Medium Enterprises.Notes: 1. From the 2008 Basic Survey of Small and Medium Enterprises Report (preliminary report). 2. “Corporations” refers to incorporated enterprises and “unincorporated” refers to unincorporated enterprises.

Numbers refer to the numbers of employees. 3. The values are the percentages of enterprises (expanded estimated figure) that responded that they “implemented

research and development for new products and technologies.”


61

Section 1

with the ratio of implementation in large enterprises for comparison. The ratio of SMEs engaged in research and development is 11.5% in the manufacturing industry, and 0.9% in non-manufacturing industries, levels which are low in comparison to large enterprises.

[2] The ratio of R&D expenditures to salesFig.2-1-19showsthetotalR&Dexpendituresoflarge

enterprises and SMEs. At ¥1 trillion, the total in SMEs is small compared to that of large enterprises, at ¥15 trillion.

LookingatthesituationintermsofthetotalofR&Dexpenditures, and the ratio of enterprises engaged in research and development that was touched on in [1], it can be seen that research and development by SMEs is sluggish compared to that of their large counterparts. However, if attention is limited to enterprises engaged in research and development, it becomes apparent that there is no significant difference in the ratio of R&D expen-ditures to sales between large enterprises and SMEs (Fig. 2-1-20), and that SMEs are also actively working in research and development.

[3] Long-term changes in R&D expendituresFig.2-1-21showsthelong-termchangesinR&Dexpen-

ditures of large enterprises and SMEs in the manufactur-ingindustry,andtheratioofthattosales.AlthoughR&Dexpenditures grew in large enterprises by 4 times and in SMEsby3.4timesovera10yearperiodinthe1970s,theratio of R&D expenditures to sales remained generallysteady in both large enterprises and SMEs at approximately

1.5%,soitcanbeassumedthatR&Dexpenditureswereincreased in proportion to increased sales.

Forthe10yearperiodofthe1980s,R&Dexpendituresgrewby3.2 times in large enterprises, and the ratioofR&Dexpenditurestosalesgrewtoo,from1.9%to3.8%.InSMEsalso,R&Dexpendituresgrewby1.6times,andtheratioofR&Dexpenditurestosalesgrewfrom1.5%to1.9%. However, the rate of increase was small compared to large enterprises.18) The fact that the ratio of R&Dexpenditures to sales increased in both large enterprises and SMEs is most likely because Japan caught up with the countries of Europe and the U.S. both economically and technologically, and because since then, recognition of the importance in developing cutting edge technology and original products rose.

Since the 1990s, Japan fell into a long-term slump after the economic bubble burst, and in both large enterprises and SMEs, the increase in R&D expenditures sloweddown. Nevertheless, the ratio of R&D expenditures tosales remained roughly the same. As stated above (in the previous Fig. 2-1-1), large enterprises and SMEs both recognized the importance of research and development, and it can be seen that a situation in which they actively engage in research and development even during times when the economic environment is severe.

[4] Research and development in Japan, the U.S. and Europe

Fig. 2-1-22 shows the ratio of the total sum of R&Dexpenditures in Japan, the United States and Europe to their

Fig. 2-1-18 Ratio of implementation of research and development by company scaleCompared to their larger counterparts, the percentage of SMEs engaging in research and development is low

Source: MIC, Survey of Research and Development (2008).Notes: 1. Survey targeting about 13,800 enterprises selected from enterprises that have capital of ¥10 million or more.

Response rate was about 76%. The date of the survey was March 31, 2008. 2. “Engage in research and development” refers to companies that responded that they use R&D spending in-house

(internally) or spent R&D funds externally. 3. Enterprises with a workforce of 1-299 are considered SMEs and those with a workforce of 300 or more are considered

large enterprises. In this survey, non-manufacturing refers to all industries excluding the manufacturing industry.

0%

0.9

11.511.5 88.588.5

99.199.1

60.660.6

20.420.4

39.439.4

100%

Manufacturing

Non-manufacturing

Manufacturing

Non-manufacturing

SMEs

Larg

e en

terp

rises

Engage in research and development Do not engage in research and development

79.679.6

18) When also looking at changes in the ratio of researchers to the workforce in large enterprises and SMEs, it can be seen that in the 1980s, the ratioincreasedmuchmoresignificantlyinlargeenterprisesthaninSMEs(Appendednote2-1-3).


62

Fig. 2-1-19 R&D expenditures of large enterprises and SMEsCompared to the R&D expenditures of large enterprises at ¥15 trillion, that of SMEs is low at ¥1 trillion

14.95

0.99

0

2

4

6

8

10

12

14

16


(¥1 trillion)

Source: MIC, Survey of Research and Development (2008).Notes: 1. Survey targeting about 13,800 enterprises

selected from enterprises that have capital of ¥10 million or more. Response rate was about 76%. The date of the survey was 31 March, 2008.

2. Enterprises with a workforce of 1-299 are considered SMEs and those with a workforce of 300 or more are considered large enterprises. Data are for “all industries.”

3. Total of internal R&D expenditures and external R&D expenditures.

Fig. 2-1-20 R&D expenditures to salesIf attention is limited to enterprises engaged in R&D, there is no significant difference in the ratio of R&D expenditures to sales between large enterprises and SMEs

Source: MIC, Survey of Research and Development (2008).Notes: 1. Survey targeting about 13,800 enterprises

selected from enterprises that have capital of ¥10 million or more. Response rate was about 76%. The date of the survey was 31 March, 2008.

2. Enterprises with workforces of 1-299 are considered SMEs and those with workforces of 300 or more are considered large enterprises.

3. Total of internal R&D expenditures and external R&D expenditures.

2.4

0.3

3.5

2.4

0

1

2

3

4

SMEsLarge enterprises

Ratio for the whole Ratio limited to enterprises engaged in R&D

(%)

205

402

789

1,269 1,2871,476

1,920

100205

337434

543 629 700779

1.6 1.7 1.9

3.0

3.8 3.84.2 4.4

1.5 1.7 1.5 1.7 1.92.3

2.62.1

0

300

600

900

1200

1500

1800

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 070.0(%)

2.0

4.0


[2] Changes in R&D expenditures to sales

[1] Changes in R&D expenditures (FY1970=100)

1970s 1990s-1980s

(Fiscal year)

Fig. 2-1-21 Long-term changes in R&D expenditures of SMEs and large enterprises (in manufacturing)Both large enterprises and SMEs are actively engaging in R&D

Source: MIC, Survey of Research and Development (2008).Notes: 1. Enterprises with workforces of 1-299 are considered SMEs and those with workforces of 300 or more are considered

large enterprises. 2. Total of internal R&D expenditures and external R&D expenditures. 3. Data are for enterprises engaging in R&D.


63

Section 1

An enterprise that tackled research and development, and shifted from subcontracting to the development of its own products

2-1-12

Based in Fuji City, Shizuoka Prefecture, with a workforce of 89 and capital of ¥59 million, Tokai Denshi Inc. is an SME that carries out the manu-facture and sale of, and support for professional alcohol measurers, which detect the presence of alcohol in exhaled breath.

After its founding in 1979, the company worked mainly as a subcontractor for a major watchmaker, focusing on operations such as the assembly of digital watches. However, with changes in the environment surrounding the company, such as watch production moving overseas, in 2002, company president Kazu-nari Sugimoto decided to embark upon the devel-opment of the company’s own products. At that time, Mr. Sugimoto believed that society needed a response to the problem of drunk driving, as in those days, there was a succession of traffic accidents caused by drinking, and scandals such as drivers of regularly-operated buses involved in drunk driving, and it was becoming a social problem.

He noticed that professional alcohol measurers only came in two types, large-scale high-perfor-mance equipment, and small and easy to measure with, but rather inaccurate devices. He realized that if he was able to develop a small yet highly effective device, it would be possible to respond to the needs of society. Using technology to combine the software and hardware expertise he accumu-lated through digital watch assembly, he man-aged to produce a prototype in just one month. In addition, he developed a way to make acts such

as falsification of data difficult, and a system to enable the consolidation of historical data.

In 2003, his professional alcohol measurer was adopted by a major bus service operator, and since then it has continued to spread through the transport industry, to taxis, trucks, and other transportation companies. In the transport industry, it was origi-nally required for roll-calls to be taken face-to-face, but due to deregulation, it became possible to do so using communications equipment (IT role-calls). As a result, the company developed an IT roll-call system, where the company’s product and a video camera are connected to a computer, so the pres-ence or otherwise of alcohol can be detected while live footage of the role call is watched. In 2008, it was first approved domestically. In January 2009, at the International Automotive Electronics Technol-ogy Expo, Tokai Denshi announced the nation’s first in-car alcohol interlock device, which makes it so that a user cannot start the engine if alcohol is detected, and this is planned for sale from July.

Mr. Sugimoto says “At first I thought that pro-fessional alcohol measurers were probably a niche market with only a limited number of customers, but I was surprised that a series of product ideas are being brought by all kinds of industry.” The number of domestic customers has now grown to around 2,500 companies, and more than 10,000 bases. In the future, the possibilities look set to grow further, with, for instance, expansion into the areas of medical and healthcare.

Case

Fig. 2-1-22 Changes in the ratio of R&D expenditures to GDP by countryThe ratio of R&D expenditures to GDP in the private sector in Japan is consistently higher than those of the U.S. and the EU

Source: OECD Science, Technology and Industry Scoreboard 2007.Note: Value for Japan in 1995 is adjusted.

0.1 0.1 0.1 0.1 0.2 0.2

95 97 99 01 03 05

0.20.2 0.3 0.3 0.2 0.2

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

(%)

95 97 99 01 03 05

0.1 0.2 0.2 0.2 0.2 0.2

95 97 99 01 03 05

Japan EUU.S.Enterprises

Government

Other

1.51.5 1.71.7 1.81.8 1.91.9 1.71.7 1.71.7

0.90.9 0.80.8 0.80.8 0.80.8 0.80.8 0.80.8

2.02.0 2.12.1 2.22.2 2.32.3 2.42.4 2.52.5

0.60.60.50.5 0.60.6 0.60.6 0.60.6 0.60.6

0.90.9 0.90.9

0.70.7 0.60.6

1.01.0 1.01.0 0.90.9 0.90.9

0.60.6 0.60.6 0.60.6 0.60.6


64

respectiveGDPs.InJapan,theratioofgovernmentR&Dexpenditures is around 0.6%, almost the same as the EU, and a slightly lower level than the United States. Regard-ingtheratioofR&Dexpendituresintheprivatesectoronthe other hand, Japan has consistently shown an increas-ing trend, reaching 2.5% in 2005, a level far in excess of the United States’ 1.7% and the EU’s 0.9%. Accordingly, it could be said that research and development by private enterprises in Japan is extremely vigorous.

This raises the question of what the situation is regard-ingresearchanddevelopmentbySMEs.Fig.2-1-23showstheratioofR&Dexpenditurestosalesbyemployeesizein Japan and the United States. In Japan, the smaller the workforce of the enterprise, the lower the ratio to sales accountedforbyR&Dexpenditures.Meanwhile, intheUnited States, in large enterprises with a workforce num-bering5,000ormore,theratioofR&Dexpenditurestosales is lower than that in Japan, but in every category for workforces of 4,999 or less, it exceeds Japan. The ratio in question is highest in SMEs with a workforce of from 100 to 249.

Fromtheabove,itcanbeseenthatR&Dactivitiesby Japanese enterprises as a whole are extremely lively, but such activities by SMEs are unable to reach the levelofvitalityoftheR&DactivitiesoftheirAmeri-can SME counterparts.

A number of factors lie behind the appearance of this difference between Japan and the United States. In the United States, there is a lot of activity in business start-

ups, and venture capital is actively provided to venture businessesintheformoffundingforR&Dactivities.Asa result, it can be thought that venture businesses lead the way in research and development, and give rise to inno-vation (Fig. 2-1-24). A more detailed look at the actual situation regarding the supply of funding by methods such as venture capital will be taken later in Section 5.

(2) Market environments and business strategies, and research and development

Sofar,changesinR&Dexpendituresandothermattershave been examined. The relationship between the market environments and business strategies of SMEs, and their efforts to pursue research and development, based on the Creativity Questionnaire will now be discussed.

Fig. 2-1-25 shows the ways in which the ratio of SMEs engaged in research and development differs, in terms of differences in the characteristics of the market the SME is providing its products and services to, whether it is a niche or not, and whether there exist any powerful rivals. According to this figure, in niche markets, the ratio of SMEs implementing research and development is high, but in the markets of products and services which are widespread and general-purpose, and in markets where subcontracted transactions form the majority, the ratio of SMEs implementing research and development is low. Since a great deal of profit can be raised if a niche market can be acquired, it can be assumed that SMEs are actively carrying out research and development to develop

3.0

4.5

4.04.2

3.7

3.2

1.5 1.6 1.5

1.9

2.8

4.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

50-99 100-249 250-499 500-999 1000-4999 5000 or more

U.S. (2004)

Number of employees

Japan (2006)

Rat

io o

f R&

D e

xpen

ditu

res

to s

ales

Fig. 2-1-23 Ratio of R&D expenditures to sales by employee size in Japan and the U.S. (in manufacturing)In the U.S., SMEs in manufacturing with a workforce of 100-249 have the highest ratio of R&D expenditures to sales

Source: Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.Note: Data for enterprises that responded about R&D in Japan and the U.S. Federal subsidies not included for the U.S. To

match the value definition of the U.S., R&D expenditures for work outsourced were excluded from the R&D expenditures and R&D expenditures for commissioned work were included for Japanese values.


65

Section 1

products and services for niche markets.Fig. 2-1-26 shows the way in which the ratio of SMEs

engaged in research and development differs, in terms of differences in the business strategies of SMEs, whether they “place importance on high quality and performance” or “lowering costs.” In SMEs that place importance on attaining high quality and performance, the percentage implementing research and development is high, while in enterprises that place importance on “lowering costs,” the percentage engaged in research and development is low,

even though they feel it is necessary to review produc-tion processes and make other efforts to achieve lowered costs. This is probably because those SMEs are tackling the issue of lowering costs because they have to compete intensely in terms of pricing. SMEs that do so are unable to easily secure profit, and as a result, probably find it dif-ficulttotaketheburdenoftheR&Dexpendituresneededto review production processes.

12.5

10.09.6

8.88.4 8.2

7.66.9

6.5 6.35.7 5.5 5.4 5.4 5.2 5.0 4.8

4.3 4.2

3.2 3.2 3.12.4

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

(%)

Icelan

dHo

ng K

ong

U.S.

Portu

gal

Unite

d Ar

ab E

mira

tes

Irelan

d

Spain

Finlan

d

Norw

aySw

itzer

land

Gree

ceEn

glan

dDe

nmar

k

Israe

lNe

ther

lands Italy

Slov

enia

Japa

nSw

eden

Belg

ium

Fran

cePu

erto

Rico

Aust

ria

ＥE

A

Fig. 2-1-24 International comparison of entrepreneurial activityEntrepreneurial activity is higher in the U.S. compared to Japan

Source: Global Entrepreneurship Monitor (2007).Notes: 1. EEA (Early-stage Entrepreneurial Activity) is an index that indicates the activeness of business activities that show the

proportion of the sum of [1] the number of people beginning preparations to start up a business and [2] the number of people managing an enterprise for less than 42 months since its start-up per 100 persons in the population in the range of 18-64 years of age.

2. Refer to Takahashi Noriyuki (2007).

Fig. 2-1-25 Differences in R&D activities by market environmentIn niche markets, the ratio of SMEs engaged in R&D is high


Note: Data for SMEs.

Ratio of enterprises engaging in R&D that fit each market environment (A)

Difference between (A) and (B)

Ratio of enterprises engaging in R&D that do not fit each market environment (B)

39

41

39

41

49

50

51

45

47

37

0%50% 50%100% 100%

Widespread and general-purpose

Slowdown in market growth

Subcontractors

Presence of powerful competitors

Niche markets

0%

1313

1111

1010

66

66


66

(3) Efforts in conducting research and development

What kinds of efforts are SMEs making to advance research and development? According to the Creativity Questionnaire, SMEs carrying out “sharing of vision and goals” are the most numerous, while there are many SMEs also carrying out “collaboration with marketing and sales divisions,” “clarification of responsibility struc-ture and division of roles” and “application of strategic collaboration and external resources” (Fig. 2-1-27).

How much are these efforts actually linked to success? Fig. 2-1-28 shows what each SME has achieved in research and development, comparing SMEs who have obtained research results leading to the realization of innovation, and SMEs who have not done so, even though they carried outR&Dactivities.Accordingtothisfigure,amongSMEswho have obtained research results leading to the realiza-tion of innovation, a relatively high percentage are engaged in “collaboration with marketing and sales divisions” and “application of strategic collaboration and external resources,” as well as “sharing of vision and goals.”

A more detailed discussion of “collaboration with marketing and sales divisions” will come later in Section 2, while examining the market strategies of SMEs, look-ing at how they are grasping the needs of their clients, for example.

(4) Collaboration with outside entitiesFig. 2-1-27 showed that a large number of SMEs carry

out “application of strategic collaboration and external resources” when they engage in research and develop-ment. Specifically, with what kind of outside entities do they strategically collaborate and what kind of external resources do they make use of?

Fig. 2-1-29 shows which outside entities SMEs are collaborating with in research and development. Most are collaborating with “customers and clients,” followed in turn by “universities and other higher education facilities,” “other companies in the same industry,” “the government, public research and support organizations,” and “other companies in other industries.” Collaboration with customers and clients can often be considered col-laboration for the purpose of understanding their needs when carrying out research and development.

Fig.2-1-30showsthespecificdetailsofcollaborationwith universities, other higher education facilities, the government, public organizations, and companies in both the same and other industries. It is apparent from this that SMEs who are restricted by their limited management resources are engaged in outsourcing their examination and testing, and joint research and development, in order to effectively apply their technology and knowledge.

As seen above, SMEs frequently carry out research and development in collaboration with external entities; they are actively engaged in so-called “open innovation.” Oftheseefforts,themethodsofconductingresearchanddevelopment by making use of intellectual property rights

Difference between (A) and (B)

Ratio of enterprises engaging in R&D that do not fit each business strategy (B)

Ratio of enterprises engaging in R&D that fit each business strategy (A)

42

44

48

49

44

39

32

18

2

0%50%100% 50% 100%

Lowering costs

Shortening delivery dates /increasing speed

Choice and concentration

High quality and performance

0%

55

1616

3131

Fig. 2-1-26 Differences in R&D activities by business strategySMEs engaged in R&D place importance on “high quality and performance of products and services” and “choice and concentration”


Note: Data for SMEs.


67

Section 1

64

45 4442

33

25

1611

0

10

20

30

40

50

60

70

(%)

Shar

ing

of vi

sions

and

goa

ls

Colla

bora

tion

with

mar

ketin

g a

nd sa

les d

ivisio

ns

Clar

ifica

tion

of

resp

onsib

ility

stru

ctur

e an

d

divi

sion

of ro

les

Appl

icatio

n of

stra

tegi

c c

ollab

orat

ion a

nd e

xter

nal

reso

urce

s

Stra

tegi

es fo

r

nur

turin

g an

d

secu

ring

hum

an re

sour

ces

Impl

emen

tatio

n

of m

anag

emen

t sy

stem

Form

ulat

ion o

f

inte

llect

ual p

rope

rty

stra

tegi

es a

nd

est

ablis

hmen

t of

a sp

ecial

ized

divi

sion

Cons

ider

ation

of m

easu

res

to p

reve

nt th

e los

s o

f hum

an re

sour

ces

Fig. 2-1-27 Activities carried out to engage in R&DSMEs engaged in R&D carry out “sharing of visions and goals” and “collaboration with marketing and sales divisions”


Note: Data for enterprises engaging in R&D.

Fig. 2-1-28 Activities of SMEs for R&D that led to the realization of innovationSMEs whose R&D efforts led to the realization of innovation carry out activities such as “application of strategic collaboration and external resources” and “collaboration with marketing and sales divisions”


Notes: 1. Out of the enterprises engaged in R&D, enterprises that responded “almost all” or “a considerable amount” led to the realization of innovation for either “R&D activities for products, services, and others” or “R&D activities” for production, distribution processes, and others” are considered “enterprises whose research results led to the realization of innovation.”

2. Blank responses excluded from data.

13.2

20.3

33.3

42.6

56.1

54.4

59.1

77.6

11.1

13.0

17.6

23.0

33.7

29.9

33.7

52.1

0%50%100% 50% 100%

Consideration of measures to prevent the loss of human resources

Formulation of intellectual property strategies and establishment of a specialized division

Implementation of management system

Strategies for nurturing and securing human resources

Clarification of responsibility structure and division of roles

Application of strategic collaboration and external resources

Collaboration with marketing and sales divisions

Sharing of visions and goals

0%

Ratio of enterprises whose research results lead to the realization of innovation engaging in each activity (A)

Ratio of enterprises whose research results did not lead to the realization of innovation engaging in each activity (B)

Difference between (A) and (B) 2.17.27.2

15.615.6

19.719.7

22.422.4

24.524.5

25.325.3

25.525.5


68

39.1

30.1

22.4 22.1 21.8

8.36.1 5.6 4.3 4.0 4.2

0

5

10

15

20

25

30

35

40

45

(%)

Cust

omer

s a

nd c

lient

s

Unive

rsiti

es

and

oth

er h

ighe

r

edu

catio

n fa

ciliti

esOt

her c

ompa

nies

in th

e sa

me

indu

stry

The

gove

rnm

ent,

pub

lic re

sear

ch a

nd su

ppor

t

org

aniza

tions

Othe

r com

pani

es

in o

ther

indu

strie

s

Supp

liers

For-p

rofit

rese

arch

inst

itute

s, R&

D

com

pani

es, a

nd

supp

ort s

ervic

e p

rovid

ers

Trad

ing

hous

es

Priva

te se

ctor

non

-pro

fit

rese

arch

inst

itute

s

Finan

cial

org

aniza

tions Othe

r

Fig. 2-1-29 Situation of external collaboration in R&D for SMEsSMEs engaged in R&D collaborate with clients, universities and others



Fig. 2-1-30 Situation of external resource utilization in R&D for SMEsSMEs engaged in R&D engage in joint R&D, and outsourcing of examination and testing



31.9

27.7

17.7

12.09.0

4.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

(%)

Outsourcing of examination and testing

Joint R&D with a small number

of other companies

Outsourcing of R&D Selling of research results

R&D through a consortium

Purchasing of research results


69

Section 1

held by external entities will be looked at more closely when taking up the topic of protection and application of intellectualpropertyrightsbySMEs,laterinSection3.

(5) Challenges in engaging in research and development

Finally, attention will be turned to the question of what kind of challenges SMEs are facing when engaging in research and development. According to the Creativity Questionnaire (Fig. 2-1-31), there are many SMEs whoconsider challenges in research and development to be “insufficient funding for R&D activities,” “insufficientworkernumbers in theR&Ddivision”and“insufficientworkerqualityintheR&Ddivision.”

When comparing this with the percentage of challenges cited as being faced by large enterprises when engaging in researchanddevelopment,“insufficientfundingforR&Dactivities” is considerably more common in SMEs, and also, although the difference is not that large, there are more SMEs who consider “insufficient worker numbers inR&Ddepartment”tobeaproblem.

Theissueof“fundingforR&Dactivities,”thegreatest

challenge for SMEs in research and development, will be taken up later in Section 5. Regarding the issue of the num-ber and quality of research workers, it will be looked at in detail in Section 4, and consideration will be given to secur-ing technical and skilled personnel, and their training.

An enterprise which worked together with a designer, and produced a new product through collaboration between agriculture, commerce and industry

2-1-13

Based in Umaji Village, Aki District, Kochi Prefec-ture, with a workforce of 24 and capital of ¥420.60 million, Ecoasu Umajimura Co., Ltd. is an enterprise which was established in 2000, mainly by the Uma-jimura Government Office, with the goal of making effective use of the forest resources of the village of Umaji to revitalize the forestry industry.

Umaji Village is a cedar producing region with 96% of its land area covered with forest. It is char-acterized by the representative “Yanase Cedar.” The company develops wooden trays, fans and so on, that use thinned cedar as their raw materials. As well as selling its products in Kochi antenna shops, and interior shops nationwide, it has also carried out sales over the internet.

Its feature product is called monacca. It is a bag which uses thinned cedar as its raw material. The novelty of the idea to make a bag using thinned cedar, together with the beauty of its design which takes advantage of the natural grain of the wood, charmed consumers, turning it into a popular product that was even awarded the Japan Indus-trial Design Promotion Organization’s Good Design Award 2006. Today monacca is more than just bags, with other items in the range including calculators and cushions.

These products came to life due to a chance meeting by Kochi-born designer Takumi Shimam-ura. Around 2000, Mr. Shimamura visited a Kochi Prefecture antenna shop in Tokyo’s Musashino, by chance noticed an Ecoasu Umajimura wooden tray,

and thought “I would love to design other everyday items, using such sweet smelling wood.” Thanks to the introduction of a friend from his hometown, he then visited the company. His idea was thus “As a designer, I’ll use this opportunity to propose new, inexpensive and high-quality products.” With this in mind he drew the sketches which served as the basis of monacca, combining two wooden trays, and presented them to the company on his visit. At Ecoasu Umajimura, they had already been considering the development of new products, and the approach from Mr. Shimamura gave them the opportunity they needed to make this a reality.

Since the company developed monacca, it has continued to take up the challenge of developing products, collaborating in the design work with Mr. Shimamura. Now it also has its sights set on sales over-seas, and is actively collaborating with the Chugei Area Society of Commerce and Industry in this area. These efforts led to it to be selected as one of the Ministry of Economy, Trade and Industry’s Select 88 Agriculture-Commerce-Industry Collaborations.

The person in charge of publicity at Ecoasu Uma-jimura, Junpei Kamiji, says “1% of the sales of our thinned cedar products is saved in a fund for the purpose of conserving the village’s forest. The fact that we are able to contribute to the forest of our hometown, thanks to the growth of the business, makes me happier than anything else.” The com-pany is now aiming to develop further, continuing the spirit of helping its hometown.

Case

Section 2 Market strategies of SMEs

70


Theprevious section lookedat thecurrent situation regardingR&DactivitiesbeingcarriedoutbySMEsaimedatrealizing innovation, and the challenges being faced by them in the process. This section attempts to analyze how SMEs are grasping their customer needs when considering the development of new products and technologies, and how they proceed in the sale of the products and services they develop; in other words, their market strategies for the purpose of “making salable products.”

In recent years, although there has been rapid progress in globalization, as seen in Chapter 1, exports from Japan have been falling dramatically in the wake of the global financial crisis, and it is clear that it is becoming necessary for SMEs to review their strategies for market cultivation, including overseas markets. The question of how SMEs are tackling the cultivation of markets abroad in recognition of this, as well as what challenges they are facing will be examined.

1. Efforts to understand customer needs

(1) Sources of ideas for new products and technology

A look will be taken here at the ways in which SMEs are working to grasp customer needs in developing new products (this refers to both products and services, and will do so below as well) and new technology, based on the Questionnaire Survey on Market Capture and Intellectual Property Strategies, hereinafter referred to as the Survey of Market Capture and Intellectual Property 19) conducted byMitsubishiUFJResearchandConsultingCo.,Ltd.

Fig. 2-2-1 looks at the question of what SMEs place importance on as the source of their ideas and concepts when developing new products and technology, and for comparison, shows this together with the things large enterprises consider important. According to this figure, a large proportion of both large enterprises and SMEs answered that they stress “trends among customers and customer needs.” Following that, many companies con-sider “trends among consumers and consumer needs” to be important. Both were much greater in number than the responses which cited “seeds of technology from own company” as important, and this is worthy of attention. It suggests that when it comes to innovation, grasping the

19) Questionnaire survey implemented in December 2008 targeting 55,000 profit-making corporations. Return rate was 15.7%.

Fig. 2-1-31 Challenges in engaging in R&DThe percentage of SMEs that cite insufficient funding for R&D and insufficient worker numbers/quality in R&D division as challenges is high


Notes: 1. Data for enterprises engaging in R&D. 2. In order to compare large enterprises and SMEs, the number of responses for each item (multiple responses allowed)

were summed up and proportionally distributed among each item so that the total of the items made up 100%.

0% 100%

Large enterprises

SMEs

Insufficient worker numbers in R&D divisionInsufficient funding for R&D activitiesEconomic/Market environment is unpredictable (uncertainty and increasing risk)

Market changes swiftly and results become obsoleteWeak collaboration with marketing, sales and distribution divisions

Cost of R&D is on the rise (scale is growing) Strict regulations

Other

Insufficient worker quality in R&D division

9%9%

24%24%

17%17%

21%21%

16%16%

16%16%

22%22%

15%15%

12%12%

11%11%

13%13%

6%6%

8%8%

5%5%

1%

2%

1%

2%


71

Section 2

needs of customers and general consumers is of more importance than seeds (company resources).

So what kinds of customer attributes and characteristics are most important to SMEs in grasping their customer needs?LookingatFig.2-2-2, it canbe seen thatwhilelarge enterprises consider “the size of the transaction” and “the leading companies in the industry” to be important as customer attributes and characteristics, SMEs tend to place more importance on “the length of dealings” and “physical distance from customer.”

Also, in grasping consumer needs, large enterprises tend to place more importance on “mass markets,” while SMEs placemoreimportanceon“nichemarkets”(Fig.2-2-3).

This raises the question of what kinds of methods are used by SMEs to gather information in order to grasp “customerneeds”and“consumerneeds.”LookingatFig.2-2-4, it can be seen that in both large enterprises and SMEs, a notably large number of enterprises responded that an important method of information gathering is their “everyday business relationship.” With SMEs, it seems that ideas are obtained by finding out the needs

in new products and technology of customers with whom they have had a relationship for many years.

As shown above, business relationships are impor-tant,20) and among SMEs, there is a trend that the better the performance of the company, the more they increase their number of customers (Fig. 2-2-5). When looking at newly acquired customers, a trend also emerges among SMEs that the better the performance of the company, the more frequently they begin dealing with geographically distant companies 21) (Fig. 2-2-6). As just seen, the number of years of dealings and close information exchange are important factors in the relationship between SMEs and their customers (Fig. 2-2-2, Fig. 2-2-4), but in addition, increasing the number of customers and expanding geo-graphically are also considered important when looked at from the perspective of being able to employ economies of scale.

Fig. 2-2-1 Issues that are important for sources of ideas and conceptsA large proportion of both large enterprises and SMEs answered that they stress “trends among customers and customer needs” and “trends among consumers and consumer needs”

85.0

36.6

8.9

37.9

17.4

11.6

21.624.7

36.5

3.7 5.4

14.7

1.1

57.5

50.2

18.1

48.8

9.4 10.812.9 11.5

46.3

6.310.5

26.1

1.00

10

20

30

40

50

60

70

80

90

(%)


Tren

ds a

mon

g

cus

tom

ers a

nd

cus

tom

er n

eeds

Tren

ds a

mon

g

con

sum

ers a

nd

con

sum

er n

eeds

Seed

s of t

echn

ology

from

own

com

pany

Seed

s of n

ew te

chno

logies

emer

ging

from

univ

ersit

ies

and

pub

lic re

sear

ch la

bora

torie

sTr

ends

of c

ompe

titor

s

and

indu

stry

gro

ups

Exch

ange

with

oth

er c

ompa

nies

of t

he sa

me

indu

stry

Exch

ange

with

oth

er c

ompa

nies

of o

ther

indu

strie

sTr

ends

of s

uppl

iers

of r

aw m

ater

ials

and

par

tsPe

rson

al id

eas a

nd

inve

ntive

ness

of

indi

vidua

l man

ager

s

Idea

s and

inve

ntive

ness

of c

ompa

ny st

aff

Acad

emic

conf

eren

ces,

diss

erta

tions

, sem

inar

s a

nd le

ctur

esNa

tiona

l poli

cies

and

syst

ems

Chan

ges i

n th

e in

dust

rial o

r

socia

l stru

ctur

e Othe

r

54.254.2

82.282.2

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on Market Capture and Intellectual Property Strategy (December 2008).

Notes: 1. Large enterprises refer to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 2. Due to multiple responses, the total exceeds 100.

20) Regarding the trading partners of SMEs (customers, suppliers of raw materials, etc.), the larger the SME in terms of employee size, the more such partners they tend to have, and an increasing trend can be seen compared to five years ago in the number of partners. See Appended notes 2-2-1 and 2-2-2

21) When looked at in terms of employee size, there is a trend for enterprises with a large employee size to newly begin dealing with geo-graphicallydistantpartners(Appendednote2-2-3).Regardingcustomers,themorecustomersacompanyhas,themoreittendstodevelopgeographically distant partners (Appended note 2-2-4).


72

Fig. 2-2-3 Important markets for grasping customer needsLarge enterprises tend to place more importance on “mass markets,” while SMEs place more importance on “niche markets”


Notes: 1. Statistics based only on enterprises that answered that they considered trends among consumers and consumer needs to be important as sources of ideas and concepts in order to produce new technologies, products and services.

2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 3. The difference is the absolute value calculated by subtracting the percentage of SMEs responding “important” from

the percentage of large corporations responding “important” in regard to each market.

0.1

0 10 20 30 40 50010203040506070(%) (%)

Overseas niche market

Overseas mass market

Domestic niche market

Domestic mass market

Difference (absolute value) SMEsLarge enterprises

4.44.4

9.39.3

12.412.4

33.133.1

39.239.2

12.612.6

20.220.2

9.29.2

25.025.0

28.728.7

59.459.4

Fig. 2-2-2 Important customer attributes and characteristics for grasping customer needsCompared to large enterprises, a higher percentage of SMEs place more importance on the “length of dealings” and “physical distance from customer”


Notes: 1. Statistics are based only on enterprises that answered that they considered trends among customers and customer needs to be important as sources of ideas and concepts in order to produce new technologies, products, and services.

2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 3. The difference is the absolute value calculated by subtracting the percentage of SMEs responding “important” from

the percentage of large corporations responding “important” in regard to each important customer attribute and characteristic.

0 10 20 30 40 5001020304050

(%) (%)

Physical distance from customer

Leading companies in the industry

Size of the transaction

Length of dealings

Difference (absolute value) SMEs

Large enterprises

5.25.2

5.05.0

12.412.4

28.928.9

39.339.3

29.329.3

15.815.8

4.64.6

7.27.2

44.744.7

43.843.8

24.324.3


73

Section 2

Fig. 2-2-4 Methods used to gather information in order to grasp “customer needs” and “consumer needs”The majority of both large enterprises and SMEs consider “everyday business relationships” to be important in gathering information

69.6

77.4

30.531.8

2.93.6 3.2

10.1

17.420.7

12.715.4

6.14.3

0

10

20

30

40

50

60

70

80

90

(%)

SMEsLarge enterprises SMEsLarge

enterprises SMEsLarge enterprises SMEsLarge

enterprises SMEsLarge enterprises SMEsLarge

enterprises SMEsLarge enterprises

Everyday businessrelationships

Sales visits to acquire new customers

Direct mail (DM) Monitoring research Using own company’s website

Participating in sample fairs and exhibitions

Using online advertisements


Notes: 1. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 2. Due to multiple responses, the total exceeds 100.

Fig. 2-2-5 The number of customers for SMEs compared to five years ago (by business performance)The better the performance of the company, the more they increase their number of customers

0.5

1.0

1.4

0% 100%

Significant surplus

Slight surplus

Break even

Slight deficit

Significant deficit

Significant increase Reduction Significant decreaseNo changeIncrease

9.79.7

4.04.0

3.03.0

2.3

2.72.7

48.848.8

41.841.8

33.233.2

27.627.6

20.820.8

32.432.4

39.339.3

40.140.1

35.735.7

30.330.3

8.68.6

13.913.9

22.322.3

31.431.4

37.437.4

3.13.1

8.88.8


Notes: 1. Business performance is in terms of ordinary profit. 2. Statistics based only on SMEs.


74

An SME expanding its market nationwide with a product that uses local resources2-2-1

Based in Shiroishi Ward of Sapporo City, with a workforce of 35 and capital of ¥10 million, MASCAR Co., Ltd. is an SME which produces and sells sweets such as puddings and cakes.

One of the company’s products is a jarred pud-ding which, due to its short shelf-life, was originally sold only within Hokkaido. It therefore developed its own technology for freezing its jarred pudding without any loss in quality, which enabled its long-

distance transport. This led to success in selling the pudding nationwide.

In addition, it is working together with local farmers and using rice flour produced in Hokkaido’s Ishikari region as one of the raw ingredients for the pudding instead of egg yolks. While the company makes active use of the resources of the region and widens its area of trade, it is also contributing to the revitalization of the region.

Case

Fig. 2-2-6 Geography distance of SMEs’ newly acquired customers (by business performance)

Enterprises with better performance tend to acquire more new customers that are in geographically distant locations

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on Market Capture and Intellectual Property Strategy (December 2008)

Notes: 1. Business performance is in terms of ordinary profit. 2. Newly acquired customers refers to those that were sought out within the past five years. 3. Statistics based only on SMEs.

1.0

1.71.7 1.2

1.1

0.4

1.1

0% 100%

Significant surplus

Slight surplus

Break even

Slight deficit

Significant deficit

Same municipality Neighboring municipality Same prefecture

Domestic and overseas

Neighboring prefecture

Domestic Overseas

3.53.5

3.53.5

3.73.7

4.74.7

5.45.4

6.86.8

8.98.9

9.59.5

7.87.8

10.010.0

9.99.9

12.812.8

11.911.9

14.914.9

17.417.4

19.219.2

17.517.5

17.317.3

46.846.8

50.050.0

49.449.4

47.447.4

44.844.8

3.03.0 21.921.9

14.314.3

10.110.1

9.69.6

11.711.7


75

Section 2

(2) Integration of manufacturing and services 22)

(1) showed that it is important for SMEs to grasp cus-tomer needs through their everyday business relationships for the purpose of developing new products and services. Attention will now be turned to one method for grasping customer needs; the management strategy of “integration of manufacturing and services.”

Specifically, there are two types of development in

this way, a) downstream development, and b) upstream development.a) Enterprises that are engaged in manufacturing com-

mence related services such as their own after-sales and maintenance services in order to understand their customer needs (downstream development).

b) Based on the needs which they have learned of through contact with their usual customers,

When SMEs expand their customer base geographically, it leads to a productivity spillover effect within the region in which it is located. Column Fig. 2-2-1 shows, using the input-output table created with regard to the city of Kurashiki, what kind of spillover effects are brought about to other enterprises within the city as a result of enterprises within the city selling their products outside the region (referred to in the table as “outward exports”). From this, we can see that it is contributing significantly to an increase in derived demand toward the production of large enterprises and SMEs within the region. The cultivation of markets outside the region by SMEs can be considered important also from the perspective of invigorating the local economy.

However, depending on the city town or village and economic zone in question, relationships and situations differ with regard to the constituent factors of economic activity, including indus-trial structure, production activity and consumption activity in terms of both supply and demand. From the perspective of invigorating the region’s economy given such local circumstances, it may be desirable to adopt measures that take into consideration the region’s characteristics while being aware that the extent of the spillover effects as listed in Column Fig. 2-2-1 varies according to the city, town, or village and economic zone.

Column 2-2-1 Discussion about estimating the productivity spillover effect using the input-output table of Kurashiki

Column Fig. 2-2-1 Production inducement coefficient due to one unit of increase in final demands

Sources: 2005 Input-Output Table for Kurashiki City (Produced by Nakamura Ryohei, Okayama University and Morita Manabu, Value Management Institute Inc.); Small and Medium Enterprise Agency, 2005 Interindustry-relations Table by Enterprise Size.

Notes: 1. Large enterprise manufacturing is occupied by a large proportion of large enterprises in Kurashiki City. It refers to basic organic chemical manufacturing, organic chemical manufacturing, petroleum products, plastic products, rubber products, pig iron, crude steel, passenger cars, ship building and repair, and precision instruments. Any others are referred to as SME manufacturing.

2. Statistics based on the manufacturing industry only.

0.01 0.03 0.05

0.40

0.02 0.02 0.02

0.67

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

Typical SME manufacturingTypical large enterprise manufacturing

0.19

0.29 0.32

0.50

0.150.22

0.39

0.94

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

SMEs (manufacturing)Large enterprises (manufacturing)

Private consumption

Public investment

Private investment

Outward exports

Private consumption

Public investment

Private investment

Exports

2005 input-output table for Kurashiki City 2005 interindustry-relations table by enterprise size

22) The term “integration of manufacturing and services” as used in this section refers to the situation where manufacturing enterprises advance into the non-manufacturing areas of wholesale, retail and services, or where non-manufacturing enterprises advance into the field of manufac-turing. Below, advancing into the area of services will be referred to as “entering the wholesale, retail and services fields,” and advancing into the area of manufacturing will be referred to as “entering the manufacturing field.”


76

An SME providing original after-sales services, perceiving the customers who purchase its machinery as “lifetime customers”2-2-3

Based in Tokyo’s Itabashi City, with a workforce of 40 and capital of ¥10 million, Daiwa Hightechs Co., Ltd. is an SME which as a developer and manu-facturer of wrapping machines for putting transpar-ent plastic covers on comic books, and boasts a 90% market share in terms of transactions, with around 5,500 bookstores nationwide. It was selected as one of the 300 of Japan’s Vibrant Monodzukuri (Manu-facturing) SMEs, 2007.

The company considers the sale of its equip-ment to be just the “starting point” and places great importance on after-sales services in order to make the bookstore which purchased the wrapping machine into a “lifetime customer.” For example, they envisioned when breakdowns would occur from the point of view of the user, and gave the wrapping machine a design that enables it to be separated into three blocks, making it possible to be sent by express delivery when repair work is necessary. Daiwa Hightechs covers the delivery costs for doing so. In addition, when a new book-store is opened, the company president and staff

even carry out a “Helping Hand Campaign,” pro-viding services such as helping with the wrapping work free of charge. Furthermore, in the event that the plastic for wrapping that the bookstore possesses as stock should degrade, it exchanges it free of charge, and since two years ago, it has sent questionnaires to its customer bookstores called “Anything in a Word, Straight to the ‘President’,” on which it receives information such as complaints and opinions. The president looks at them all him-self, and endeavors to respond, engaging actively in dialogue with the customer.

The President of Daiwa Hightechs, Koichi Ohishi teaches his staff that “information is not found inside the company” and works to develop his staff so that they treat “points of contact with the cus-tomer” with the utmost importance. The company is actively creating these points of contact, and making use of the information obtained from them to improve products and services. This can be seen as a success story in the integration of manufactur-ing and services.

Case

A manufacturing enterprise that grasps its “customer needs” by holding cooking classes2-2-2

Based in Inazawa City, Aichi Prefecture, with a workforce of 245 and capital of ¥45 million, Comet Kato MFG. Co., Ltd. is a kitchen equipment manu-facturer, specializing in heating appliances.

The company’s main product, the “steam con-vection oven” is a professional oven which can carry out a range of cooking methods using a single unit, including steaming, baking, simmering, cooking, frying and boiling. At present however, the product has not yet spread widely, and there are many cases where users such as restaurants do not know how to use it well. Therefore, in addition to determining its “customer needs” through maintenance and after-sales services, the company has been actively provid-ing opportunities to explain the use of the machine resulting in “contact with the customer,” and using this to draw out the ideas required for technology improvement and new product development.

Specifically, the company holds seminars for users at a rate of about 100 per year, and explains to users how to use the oven by teaching unique

recipes conceived within the company. Through these seminars, it gains information on the cus-tomer and their requests, and then holds joint workshops between the staff who attended the seminar and engineers in order to feed that information back into technology improvement and product development. At these workshops, the staff members who dealt with users at the seminar stage demonstrations to explain the user-friendliness of the oven, requests from users, and so on, giving the engineers a chance to learn this first hand. Meanwhile, lively discussions are held, aiming at technology improvement and develop-ment of new products.

This is an example of a manufacturing enterprise placing importance on providing services in addi-tion to maintenance and after-sales in the form of suggestions for and discussion with users. By doing so it has made the realization of technology improvement and product development possible, using “the customer” as a starting point.

Case


77

Section 2

enterprises running wholesale, retail and service businesses commence manufacturing themselves to respond to those needs (upstream development).

Below, the current situation surrounding the integration of manufacturing and services will be explored, based on the Survey on Market Capture and Intellectual Property.

[1] The situation regarding efforts for integration of manufacturing and services

Fig. 2-2-7 shows the ways in which large enterprises and SMEs are working to integrate manufacturing and services. When looking at large enterprises and SMEs that work in manufacturing, it can be observed that compared to large enterprises, SME manufacturers are not really making progress at entering the services field, but look-ing at non-manufacturing industries, SMEs have a larger proportion of their numbers working on manufacturing than their large counterparts.

Lookingnowat the times theentryoccurred,SMEscan be seen entering the services field from manufactur-ing in great numbers since the 1990s compared to large

enterprises. Meanwhile, the number of SMEs entering the manufacturing field from non-manufacturing industries in the 1980s and 1990s is striking, whereas in the early 2000s, there was a more significant number of entries by large enterprises (Fig. 2-2-8).23)

Since a large financial burden is often required for installing manufacturing equipment when non-manu-facturing enterprises enter the field of manufacturing, it is expected that the smaller the enterprise in terms of employee size, the higher the barriers preventing them from doing so. Fig. 2-2-9 reveals a trend that the smaller the enterprise is in terms of employee size, the more they appear to be responding with the method of “concentrating on planning, research and development, while outsourc-ing production” (the so-called “fabless system”). Gener-ally speaking, to SMEs whose management resources are limited, outsourcing to external entities is one of the most important methods for complementing their own management resources. When non-manufacturing enter-prises enter the field of manufacturing, outsourcing via the fabless system can be considered an effective method for doing so.

Fig. 2-2-7 Integration of manufacturing and servicesWhile there are more large enterprises that have entered the services field from manufacturing, more SMEs than large enterprises have entered the manufacturing field from non-manufacturing


Notes: 1. Statistics based only on enterprises that either answered that they entered the services field from manufacturing, or entered manufacturing from non-manufacturing industries.

2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law.

0% 100%

Large enterprises

From

man

ufac

turin

g to

ser

vice

s fie

ldFr

om n

on-m

anuf

actu

ring

to m

anuf

actu

ring

field

SMEs

Large enterprises

SMEs

Entry Non-entry

53.653.6

25.225.2

39.239.2

43.543.5

46.446.4

74.874.8

60.860.8

56.556.5

23) Whenlookedatintermsofemployeesize,therehasbeenatendencyforalargernumberofenterpriseswithasmallworkforcetoentereachother’s industries recently, with the aim of integrating manufacturing and services (Appended note 2-2-5).


78

Fig. 2-2-9 Manufacturing by enterprises that have entered the manufacturing field from non-manufacturing industries (by employee size)Enterprises with smaller workforces are more likely to enter the manufacturing field by adopting the so-called fabless system where production is outsourced; the system is also an effective method for small enterprises with limited management resources to enter the manufacturing field


Notes: 1. Statistics based only on enterprises that answered that they entered the manufacturing field from non-manufacturing industries.

2. Statistics based only on SMEs.

0% 100%

Up to 20

21-50

51-100

101-300

301 or more

Total

Manufactures completed products and final products Manufactures parts and half-finished parts

Manufactures materials and raw materials Focuses on planning, and research and development; manufacturing is outsourced

46.746.7

67.267.2

62.962.9

51.251.2

61.561.5

58.058.0

23.323.3

13.913.9

20.020.0

30.230.2

38.538.5

20.620.6

15.015.0

10.210.2

8.68.6

11.611.6

11.211.2

15.015.0

8.88.8

8.68.6

7.07.0

10.210.2

0.00.0

Fig. 2-2-8 Integration of manufacturing and servicesSMEs can be seen entering the services field from manufacturing in great numbers compared to large enterprises since the 1990s; meanwhile, the number of SMEs entering the manufacturing field from non-manufacturing industries in the 1980s and 1990s is striking, whereas in the early 2000s, there has been a more significant number of entries by large enterprises

0% 100%

Large enterprises

SMEs

Large enterprises

SMEs

1980sPre-1970s 1990s 2000-2004 Since 2005

52.352.3

38.938.9

53.353.3

48.648.6

23.323.3

18.418.4

11.111.1

17.117.1

10.510.5

20.020.0

8.98.9

17.917.9

8.18.1

14.214.2

20.020.0

10.910.9

5.85.8

8.58.5

6.76.7

5.55.5

Tim

ing

of e

ntry

into

ser

vices

fiel

d fro

m m

anuf

actu

ring

Timing

of en

try in

to ma

nufac

turing

field

from

non-m

anufa

cturin

g ind

ustrie

s





79

Section 2

[2] Reasons for integrating manufacturing and services

What are the main reasons behind the efforts of SMEs to integrate manufacturing and services as we saw above? Fig. 2-2-10 shows that the most common reason cited by SMEs for entering the services field from manufacturing was “as part of business diversification.” The next most common reason was “to have a method of selling to customers ourselves,” while the similar reason to this in regards to contact with the customer, “to draw out needs and strengthen marketing functions” was far from few in number. Dividing these results into SMEs who produced hit products (referring to products and technologies that have made a considerable contribution to a company’s earnings among the projects that were planned and

developed over the last 10 years; the same applies below), and those which did not, it can be seen that the number giving the reason “to have a method of selling to custom-ers ourselves” is relatively high among SMEs that had hit products. As a reason for non-manufacturing enterprises entering the manufacturing field, many SMEs cited “to expand the range of products and services provided to our customers” (Fig. 2-2-11).

As seen above, in order to grasp their customer needs and increase points of contact with customers, SMEs have come to tackle the development of new products and technologies through the integration of manufactur-ing and services without being limited by restrictions of their original industry type, and these kinds of efforts can probably be considered important in the future as well.

Fig. 2-2-10 Reasons for entering manufacturing from the services fieldThe most common reason cited for entering the services field from manufacturing was “as part of business diversification,” although “to draw out needs and strengthen marketing functions,” and “to have a method of selling to customers ourselves” is also a popular answer; in comparison to large enterprises, relatively fewer SMEs cited “to strengthen our after-sales service system for our customers,” and more SMEs cited “to incorporate value-added by transferring from upstreaming to downstreaming”; many SMEs that had hit products also gave “to have a method of selling to customers ourselves” as a reason


Notes: 1. Statistics based only on enterprises that answered that they entered the services field from manufacturing. 2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 3. Hit products refers to new products, technologies and services developed over the last 10 years that have made a

considerable contribution to a company’s earnings.

0%

0%

100%

100%

SMEs

Large enterprises

To draw out needs and strengthen marketing functions To have a method of selling to customers ourselves

To incorporate value-added by transferring from upstreaming to downstreamingTo strengthen our after-sales service system for our customers

OtherAs part of business diversification

SMEs with hit products

SMEs without hit products

1. Classified by large enterprises and SMEs

2. SMEs, classified by those that have hit products and those without

11.911.9

8.28.2

24.424.4

21.321.3

5.95.9

19.719.7

13.813.8

4.94.9

38.438.4

34.434.4

5.65.6

11.511.5

12.312.3

11.411.4

26.526.5

22.222.2

6.36.3

5.65.6

13.713.7

13.913.9

34.134.1

42.942.9

7.27.2

4.04.0


80

Fig. 2-2-11 Reasons for entering manufacturing from non-manufacturing industriesMany enterprises cited “to expand the range of products and services provided to our customers” as a reason for non-manufacturing enterprises entering the manufacturing field; there are also a relatively high number of SMEs with hit products that cited “to manufacture goods that reflect our customers’ needs” as a reason


Notes: 1. Statistics based only on enterprises that answered that they entered manufacturing from non-manufacturing industries. 2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 3. Hit products refer to new technologies, products and services that have made a considerable contribution to a

company’s earnings over the last 10 years.

0.0

0%

0%

100%

100%

SMEs

Large enterprises

SMEs with hit products

SMEs without hit products

1. Classified by large enterprises and SMEs

2. SMEs, classified by those that have hit products and those without

20.720.7

38.838.818.518.5

37.937.9

18.818.8

27.627.6

20.020.0

13.813.8

3.83.8

21.721.7

14.714.7

38.338.3

39.339.3

18.918.9

19.019.0

17.117.1

23.323.3

4.04.0

3.73.7

To manufacture goods that reflect our customers To expand the range of products and services provided to our customers

To incorporate value-added by transferring from upstreaming to downstreaming As part of business diversification Other

An enterprise strengthening relationships with its customers through “hygiene management” support2-2-4

Saraya Co., Ltd., with a workforce of 866 and capital of ¥45 million, is an SME based in Osaka City’s Higashisumiyoshi Ward that manufactures and sells soaps, detergents and other products that are kind to the environment, such as a detergent that uses palm fruit as an ingredient. It was selected as one of the 300 of Japan’s Vibrant Monodzukuri (Manufacturing) SMEs, 2008.

As well as selling its main products, environmen-tally friendly detergents, and dispensers (devices for providing a fixed amount of liquid detergent) for use with them, it conducts a range of “hygiene management” support services. For example, staff from the company possessing qualifications as food

hygiene instructors carry out hygiene diagnoses, and hygiene training sessions for customers, and the company creates and provides hygiene manage-ment manuals tailored specifically to the individual business of each of its customers. The result of such efforts is that it makes close communication with customers who only purchased their products possible, which makes it easier to incorporate the customer’s wishes in new product development.

Saraya plans to continue strengthening its rela-tionship with its customers by carrying out total support services for realizing customer hygiene management, and proceed in the development of new products.

Case


81

Section 2

(3) Efforts aimed at collaboration between agriculture, commerce and industry

As seen in (2), trends can be seen in the integration of manufacturing and services in order to understand “customer needs.” A closer look will now be taken at the

food manufacturing industry.Fig. 2-2-12 looks at whether or not enterprises in the

food manufacturing industry are entering the services field and the corresponding reasons. The food manufac-turing industry has a higher ratio of enterprises entering

An SME which has built a brand that is gaining unwavering consumer confidence by combining manufacturing with services which begin with the customer

2-2-5

Based in Tokyo’s Ota City, with a workforce of 130 and capital of ¥300 million, Tohnichi Mfg. Co., Ltd. is an SME that in 1951 made the country’s first torque wrench (a tool for tightening screws and inspection) into a product for sale, and was selected as one of the 300 of Japan’s Vibrant Monodzukuri (Manufacturing) SMEs, 2006. Since its founding in 1949, it has developed a range of torque wrenches, establishing its own brand “Tohnichi” and attain-ing a 70% share of the domestic market.

As “an all-around partner in torque technology” the company provides services to help its users solve their problems in the areas of screw tightening and torque measurement. It drew up a handbook comprised of torque-related technical information (awarded the Minister of International Trade and Industry Prize at the 1999 Japan Industrial Advertis-ing Awards). The handbook is not a catalog of the company’s products. In fact, it contains technical data including fundamental background knowl-edge pertaining to torque, and is full of the most recent “torque management” related technical information that is difficult to obtain anywhere

else. As such it is prized by customer manufactur-ers. Volume 7 of the handbook was published and distributed in December 2008.

In 1999, Tohnichi established the Torque Center Building, complete with showrooms and laborato-ries, to act as a base from which to provide customer services. It also provides a meeting place for carrying out courses and training on the necessity of regu-lar tightening management, as well as on torque equipment setup and repair. This is essentially the company’s head office building, but rather than call it “head office,” the idea of it being a base for pro-viding services to customers was incorporated, and they opted to name it “Torque Center” instead. The company has also set up Torque Centers in Osaka, Nagoya and Belgium (Tohnichi Europe), which are also used as bases for customer services.

The company’s manufacturing and services which always consider the customer to be a starting point in this way are responsible for the unwavering confidence in the “Tohnichi” brand, and are closely tied with the company’s further improvement of its technical capacity and services.

Case

Fig. 2-2-12 Reasons for entering the services industry from the food manufacturing industryThe food manufacturing industry has a higher percentage of enterprises entering the service field than SMEs as a whole, with a significantly high number citing “to have a method of selling to customers ourselves” as the reason


Notes: 1. Food manufacturing refers to the “09 food manufacturing categories” and “10 food, tobacco, and feed manufacturing categories” as provided in the Japan Standard Industrial Classification (revised November 2007).


0% 100%

Food manufacturing

industry

Entry Non-entry

0% 100%

Food manufacturing

industry

1. Entry or non-entry into the services field

2. Reason for entering the services field

To draw out needs and strengthen marketing functions To have a method of selling to customers ourselves

As part of business diversification

To strengthen our after-sales service system for our customers To incorporate value-added by transferring from upstreaming to downstreaming

Other

40.640.6 59.459.4

12.912.9 3.63.628.828.813.713.73.63.637.437.4


82

the service field than SMEs as a whole (Fig. 2-2-7 and 2-2-10 above). The number citing “to have a method of selling to customers ourselves” as a reason is remarkably high here, too.

In incorporating these kinds of “customer needs” into new products, upstream collaboration with agriculture, forestry and fisheries enterprises is also important. The government is implementing measures to support the devel-opment of new products and new services through organic collaboration between SMEs and agriculture, forestry and fisheries, based on the “Law to Promote Collaborationbetween Agriculture, Commerce and Industry.”24)

If we look at specific examples of efforts,25) we notice that the details of collaborations in the development of new products are wide-ranging, from those that make use of local agricultural products, to full-scale efforts that reform the business model relating to agriculture, forestry and fisheries, such as improvement of preservation meth-ods using the technology of the manufacturer.

The objectives of collaborations with agriculture, for-estry and fisheries are given as “achieving traceability,” as well as “the formation of regional brands and product brands” and “direct purchase of raw materials,” indicating their consideration of ensuring food safety and consumer confidence.26)

The development and sale of products with high added value through this kind of collaboration between SMEs and agriculture, forestry and fisheries is important from the perspective of regional revitalization as well.

2. Market strategies utilizing IT

(1) The benefits of electronic commerce 27)

Oneofthechangesinthesalesmethodsemployedbyenterprises that came about as a result of the spread of IT (information technology) is the increase in electronic commerce.28) Through the use of electronic commerce, one can expect to achieve business which goes beyond the restrictions imposed by physical distance. Fig. 2-2-13revealsatrendinthatmanyoftheenterpriseswhichconduct electronic commerce are also engaged in direct export.29) Furthermore, in the manufacturing industry, the larger the enterprise in terms of employee size, the higher the ratio engaged in direct export. In non-manufacturing industries on the other hand, even though there are differ-ences due to the use or otherwise of electronic commerce, no differences can be seen due to the employee size.

Fig. 2-2-14 shows the benefits of conducting electronic commerce felt by SMEs based on the Survey on Market Capture and Intellectual Property. According to this

24) AsoftheendofMarch2009therehavebeen190certificationsbasedontheLawtoPromoteCollaborationbetweenAgriculture,CommerceandIndustry(LawNo.38,2008).

25) See MAFF and METI’s Select 88 Agriculture-Commerce-Industry Collaborations.26) For details on collaboration between SMEs and agriculture, forestry and fisheries, see the 2008 White Paper on Small and Medium Enterprises

in JapanPart3,Chapter3,p.191–213.27) Here the term electronic commerce refers to the placing and receiving of orders using the Internet or a leased line, but does not necessarily

include settlement of accounts.28) For example, according to the SME Agency’s Basic Survey of Small and Medium Enterprises, during the four year period from 2004 to 2007,

the number of SMEs conducting electronic commerce rose from 5.5% to 6.5%.29) Here the term direct export refers to exports where customs clearance is carried out in the company’s own name.

Fig. 2-2-13 Relationship between electronic commerce and direct exports (by employee size)A higher proportion of enterprises that conduct electronic commerce engage in direct exports

20.2

13.4

24.7

18.0 16.9

9.2

25.4

18.8

34.7

29.1

17.4

9.1

37.4

22.7

61.7

46.0

17.3

8.4

28.3

17.7

41.8

27.9

17.2

8.9

0

10

20

30

40

50

60

70

(%)

Conducts electronic commerce

Does not conduct electronic commerce





Non-manufacturing industryManufacturing industryAll industries

50-100 101-300 301 or more Total employees

Source: Recompiled from METI, 2007 Basic Structure of Japanese Business and Activities (2009).


83

Section 2

figure, SMEs which consider “reduction of trading costs” to be a benefit are greatest in number, but when looked at in terms of employee size, the smaller the enterprise, the larger the number citing that it is “easy to acquire new customers.”30) This suggests that actively engaging in electronic commerce is important as a means of acquiring customers for small enterprises as well. In Fig. 2-2-14, the number of respondents who consider the benefit of elec-tronic commerce to be that it is “a method for developing markets overseas” also accounts for approximately 5%. It can be assumed that since the number of enterprises engaged in export is small among SMEs, the number citing this as a benefit is also small. However, as was also suggested in Fig. 2-2-13, electronic commerce canbe considered an important means of expanding one’s market abroad.

(2) Electronic commerce and business performance

Now the relationship between the use of electronic commerce and business performance will be considered. Fig. 2-2-15 shows the relationship between the two, in

terms of employee size. According to this figure, SMEs using electronic commerce have higher profit ratios than SMEs which are not, regardless of the employee size.

Thus, the utilization of electronic commerce can be considered an effective tool for acquiring new customers and increasing business performance.

25.1

17.613.1

40.4

7.9

22.119.5

13.1

61.6

24.8

14.6

12.3

31.7

4.3

15.521.7

14.2

64.0

25.1

12.1

14.3

29.1

3.2

13.2

21.4

12.8

68.8

26.2

14.0

15.6

25.5

3.8

12.021.0

12.4

29.5

8.012.5

22.7

5.713.6

11.414.8

0

10

20

30

40

50

60

70

80

(%)

Redu

ction

of

trad

ing

cost

s

Redu

ction

of

dist

ribut

ion c

osts

Only

a sm

all a

mou

nt o

f in

vest

men

t is

requ

ired

Do n

ot h

ave

to h

old o

nto

unn

eces

sary

stoc

k

Easy

to a

cqui

re

new

cus

tom

ers

A m

etho

d fo

r

dev

elopi

ng m

arke

ts o

vers

eas

Mak

es it

pos

sible

to d

evelo

p a

nich

e m

arke

t

Easy

to g

rasp

nee

ds o

f c

usto

mer

s

Othe

rs

Up to 20 21-50 51-100 101-300 301 or more

57.357.3

64.864.8

Fig. 2-2-14 Benefits of conducting electronic commerce (by employee size)Regardless of workforce size, a high proportion of enterprises consider “reduction of trading costs” to be a benefit; Also, the smaller the enterprise, the relatively larger the number citing that it is “easy to acquire new customers”


Notes: 1. Here the term electronic commerce refers to the placing and receiving of orders using the Internet or a leased line, but does not necessarily include settlement of accounts.

2. Statistics based only on SMEs. 3. Due to multiple responses, the total exceeds 100.

30) Lookingatthebenefitscitedforcarryingoutelectroniccommerceinrelationtosubcontracting,itcanbeseenthatthenumberofsubcontractorsthat consider “reduction of trading costs” to be a benefit is relatively large compared to non-subcontractors, while among non-subcontractors, the number that consider “easy to acquire new customers” to be a benefit is relatively large compared to subcontractors (Appended note 2-2-6).


84

Fig. 2-2-15 Relationship between use of electronic commerce and business performance (by employee size)Enterprises using electronic commerce have higher profit ratios than those which are not, regardless of the employee size

Source: Recompiled from the SME Agency’s Basic Survey of Small and Medium Enterprises.Notes: 1. Statistics based only on corporations. 2. Shows the amount of divergence between the overall mean value of the ratio of operating profit to net sales of the

past three years (2006, 2007, 2008), and the mean value of the ratio of operating profit to net sales for each employee size category. The data is divided in terms of whether the enterprises conduct electronic commerce or not.

3. The overall mean value of the ratio of operating profit to net sales is -0.70%.

-1.92

0.36

1.26

2.61

3.51 3.48

0.82

-2.02

-0.16

0.94

2.37

3.26 3.27

-0.10

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

Up to 5 6-10 11-20 21-100 101-300 301 or more Total

Conducts electronic commerce Does not conduct electronic commerceRatio of operating profit to net sales (amount of divergence from overall mean value)

An SME that succeeded in using IT to distribute non-standard fresh fish2-2-6

Based in Suita City, Osaka Prefecture, with a workforce of 26 and capital of ¥44 million, Syunzai Inc. is an SME which developed a system for trading in non-standard and rare fish from specific regions using IT, contributing to the revitalization of the fisheries industry.

The company provides information on and images of non-standard fresh fish that are not dealt in bulk on the regular market, as well as rare fresh fish that can only be caught in specific regions, over the Internet via its website. It pro-vides an electronic commerce system for matching up fisheries that provide fish online with parties that purchase fish such as wholesale traders, and enabling the settlement of sales and purchases.

Since they have the right of price determination, it is possible for fisheries to sell at a higher price than usual. At the same time, it is possible for the whole-sale and retail trade customers to obtain rare fish, and procure them at lower prices than by normal distribution methods, differentiating themselves from other wholesale and retail traders.

At present, 46 fishery cooperatives and wholesale traders across the country are participating in this system, and interest from abroad is also mounting. The president of Syunzai, Masumichi Nishikawa has high hopes, saying, “With this system for arranging the sale and purchase of fish online, it will not be long until fresh fish from Japan are exported to every corner of the world.”

Case


85

Section 2

3. The efforts of SMEs to cultivate markets overseas

As seen in the previous sub-section, many enterprises that are performing well tend to also be cultivating new markets, including those overseas (Fig. 2-2-6 above). On the other hand, as seen in Chapter 1, exports fromJapan have fallen dramatically as a result of the global economic slowdown, and SMEs have also found it neces-sary to review their foreign strategies.

The destinations for exports of products produced mainly by SMEs show that the percentage of exports to the Asian region including China and the ASEAN-10, is higher even than that of products produced mainly by large enterprises (Fig. 2-2-16). In this way, it can be seen that the Asian economies make up a large share of the destinations for exports by SMEs, forming a close rela-tionship. While on one hand domestic demand in the form of consumption and capital investment has been decreas-ing in Japan, the Asian economy, though slowing down, continues to grow. To SMEs therefore, the development of

markets overseas can still be considered important.31)

In this sub-section, the current situation and challenges facing SMEs working to develop their markets overseas will be analyzed and the question of how they are reorga-nizing their foreign strategies will be considered.

(1) The current situation and challenges in the foreign strategies of SMEs

[1] Export methodsFirst off, the circumstances surrounding the export of

products by SMEs will be examined. Fig. 2-2-17 shows the current situation for each method of exporting products employed by large enterprises and SMEs, including direct export, indirect export (refers here and below to exports carried out through a third party, such as a trading com-pany or wholesale trader within Japan or an export agent with the knowledge of the export partner) and exports abroad via a business partner, based on the Survey of Mar-ket Capture and Intellectual Property. The percentage of SMEs which conduct direct export is lower than that of large enterprises,32) and the percentage conducting indirect

Fig. 2-2-16 Export destinations by size of enterpriseA higher percentage of typical SME business products are exported to the Asian region than large enterprise business products; SMEs have a higher percentage of exports to the Asian region than large enterprises

Source: SME Agency, Export and Import Values by Size of Enterprise.Notes: 1. Typical SME business products (and typical large enterprise business products) refers to products that make up at

least 70% (using 2005 as a basis) of the value of shipments of small and medium business establishments (and large business establishments) according to the Japan Standard Industrial Classification. “Combination industrial products” refer to products that belong to neither of these classifications.

2. Statistics based on data from 2007.

1.5

0.9

1.3

0% 100%

Typical SME products

(¥10.1 trillion)

Combination industrial products

(¥33.8 trillion)

Typical large enterprise

products (¥31.6 trillion)

Total export amount

(¥75.6 trillion)

People’s Republic of China Republic of Korea ASEAN Hong Kong

Other regions

Taiwan

Other Asian regions North America Western Europe

8.48.414.714.710.810.823.023.0 9.89.88.98.96.36.316.116.1

14.214.215.915.918.618.67.67.65.15.112.912.916.616.6 7.67.6

12.512.5

15.715.7

10.810.8

12.512.5

22.122.1

19.519.5

16.416.4 20.420.4

16.016.015.315.36.56.55.45.47.87.8

7.17.1

1.91.9

4.54.55.35.3

67.1% for exports to the Asian region67.1% for exports to the Asian region

31) AccordingtotheBOJ’sTankan (surveyed March 2009), although SMEs revised their export plans downward, there are no large trends in the ratio of exports to sales (Appended note 2-2-7). It is nevertheless important to pay attention to future trends.

32) WhenlookingattheratiosoflargeenterprisesandSMEsconductingdirectexportaccordingtoMETI’sBasic Survey of Japanese Business Structure and Activities, it is apparent that in the manufacturing industry, the percentage is about twice as high in large enterprises (Appended note 2-2-8). However, it must be kept in mind that the Basic Survey of Japanese Business Structure and Activities targeted enterprises with capitalof¥30millionormore,andanemployeesizeof50ormore.


86

export is also lower among SMEs, even though the gap compared to large enterprises has been shrinking.33)

Ontheotherhand,“exportsproductstooverseasmarketvia business partner” is an area in which the percentage of SMEs is much higher than large enterprises. For example, an SME manufactures an automobile component, and delivers it to a large enterprise which assembles vehicles that are then exported abroad. According to the same figure, SMEs whose “products are not exported overseas” make up 48.0%. Although it is necessary to consider this from a wider perspective by looking at individual char-acteristics with a questionnaire survey, it is clear that the products of a large number of SMEs are either exported as they are or exported to markets overseas by being incorporated into other products.

[2] Export partnersThe export partners of SMEs will now be discussed.

According to Fig. 2-2-18, the most common direct export partners of SMEs are local manufacturers, and generally speaking it seems that local enterprises tend to be more common as direct export partners than enterprises with

anaffiliationtoaJapan-basedenterprise.Lookingatthereasons given for engaging in direct export, many SMEs cite “the ability to grasp customer needs directly and expect feedback” and “the ability to obtain information directly and expect feedback” (Fig. 2-2-19).

Many SMEs consider “difficulty in grasping customer needs directly” as a problem in indirect export (Fig. 2-2-20), and there is also a higher percentage of SMEs than large enterprises that have “difficulty in handling follow-up for overseas customers” and consider “not having price setting and price negotiation rights” as a problem.

With overseas economies slowing down and Japanese exports falling dramatically, it is of extreme importance that SMEs accurately grasp the needs of their foreign customers and ensure the export of salable products by engaging in direct export. It can be assumed that it will be important in the future to continue providing support in order for SMEs to actively tackle exports.34)

[3] Overseas premisesAs of 2006, 7,551 SMEs (corporations) are expanding

overseas with subsidiaries or affiliates outside of Japan,

Fig. 2-2-17 Overseas sales situationThe percentage of SMEs which conduct direct and indirect export is lower than large enterprises; over half of enterprises market products in some form if those enterprises that export goods via a business partner are included

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Direct export refers to exports where customs clearance is carried out in the company’s own name. Indirect export

refers to exports carried out through a third party, such as a trading company, wholesale trader or export agent within Japan with the knowledge of the export partner.

2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 3. Due to multiple responses, the total exceeds 100.

15.417.5

33.2

48.046.5

29.4

22.7

34.4

0

10

20

30

40

50

60

(%)

Conducts direct export Conducts indirect export Exports products to overseas market via business partner

Products are not exported overseas


33) Whenlookedatintermsofemployeesize,atrendinthatthelargerthesizeoftheenterprise,themoretheysellabroadcanbeseen(Appendednote 2-2-9). Furthermore, when looked at in terms of whether patents have been obtained or not, a trend in that enterprises who have acquired patents tend to be selling abroad more than those which have not is revealed (Appended note 2-2-10).

34) Fordetailsonfactorssuchasthechallengesincarryingoutdirectexport,seePart2,Chapter4ofthe2008 White Paper on Small and Medium Enterprises in Japan.


87

Section 2

Fig. 2-2-18 Direct export partnersThough a smaller percentage of SMEs than large enterprises have partners for direct export, their direct exports to local manufacturers and local midsize and SME wholesalers account for a large portion

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Direct export refers to exports where customs clearance is carried out in the company’s own name. 2. Statistics are based only on enterprises that answered that they engage in direct export. 3. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 4. Due to multiple responses, the total exceeds 100.

11.2

29.6

11.7

42.8

8.85.1 6.5

1.4

25.5

3.17.9

29.7

35.2

14.8

51.6

14.8 15.6

10.2

4.7

44.5

3.9

17.2

0

10

20

30

40

50

60

(%)

Loca

l majo

r w

holes

alers

Loca

l sec

ond-

tier

small

and

med

ium

who

lesale

rs

Loca

l ret

ailer

s

Loca

l

man

ufac

ture

rs

Othe

r loc

al tr

ader

s

Japa

nese

majo

r w

holes

alers

Japa

nese

seco

nd-ti

er sm

all

and

med

ium

who

lesale

rs

Japa

nese

reta

ilers

Japa

nese

man

ufac

ture

rs

Othe

r

Jap

anes

e tra

ders

Othe

r


Fig. 2-2-19 Reasons for engaging in direct exportsMany SMEs cite “the ability to grasp customer needs directly and expect feedback” and “the ability to obtain information directly and expect feedback” as reasons for engaging in direct export

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Direct export refers to exports where customs clearance is carried out in the company’s own name. 2. Statistics are based only on enterprises that answered that they conduct direct export. 3. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 4. Due to multiple responses, the total exceeds 100.

37.6

47.8

41.7

32.036.3

29.4

22.7 24.6

6.4

48.4

58.6

52.3

45.340.6

21.9

14.1

21.1

6.3

0

10

20

30

40

50

60

70

(%)

It is

poss

ible

to a

scer

tain

ove

rsea

s dem

ands

The

abilit

y to

gra

sp c

usto

mer

nee

ds d

irect

ly an

d

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ect f

eedb

ack

The

abilit

y to

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ain in

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ation

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and

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ect f

eedb

ack

The

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y to

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dle

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The

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eas

sales

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nses

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ced

beca

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gins

are

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The

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dle

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ently

The

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know

-how

on

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rts w

ithin

the

com

pany Ot

her



88

which is an increase of 19% compared to 2001.35) Fig. 2-2-21 shows the results obtained when large enterprises and SMEs expanding overseas were asked for their reasons for doing so. According to this figure, the percentage of SMEs citing “cost-down production due to cheap labor” was greatest at 51.6%. The percentage of SMEs that gave “market development and sales promotion in the region” as the reason also reached 44.2%. This shows that conscious-ness regarding market development and sales promotion is high, even in the overseas expansion of SMEs.36)

[4] Relation to business performanceFig. 2-2-22 shows the percentage of operating profit

on sales in terms of whether direct export is conducted or

not, and whether they have premises abroad. Enterprises carrying out direct export and enterprises with premises abroad have higher profit ratios.

Fig. 2-2-23 shows the results obtained when SMEsthat are engaged in direct and indirect export were asked whether doing so has had a positive effect on business performance based on the Survey of Market Capture and Intellectual Property. According to this, approximately 80% of SMEs with regard to direct exports, and approxi-mately 70% of SMEs with regard to indirect export report that they have felt a positive effect. The development of markets overseas can therefore be thought to contribute to an improvement in business performance.

Fig. 2-2-20 Problems when engaging in indirect exportsBoth large enterprises and SMEs consider “difficulty in grasping customer needs directly” as a problem; also, SMEs have a relatively higher percentage of enterprises that consider “difficulty in handling follow-up for overseas customers,” and “not having price setting and price negotiation rights” to be a problem than large enterprises

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Indirect export refers to exports carried out through a third party, such as a trading company, wholesale trader, or

export agent within Japan with the knowledge of the export partner. 2. Statistics are based only on enterprises that answered that they conduct indirect exports. 3. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 4. Due to multiple responses, the total exceeds 100.

50.2

42.9

35.331.6

8.55.8

60.0

36.3

21.3

42.5

7.5 6.3

0

10

20

30

40

50

60

70

Difficulty in grasping customer

needs directly

Difficulty in handling follow-up for

overseas customers

Not having price setting and price negotiation rights

Higher costs because margins

are necessary

Difficulty in getting wholesalers to stock products

Other

SMEsLarge enterprises(%)

35) AccordingtodatarecompiledintheMIC’sEstablishment and Enterprise Census of Japan, the number of SMEs expanding overseas is 7,551. This is equivalent to 0.5% of all SMEs (company data). See Appended note 2-2-11. In the Survey of Market Capture and Intellectual Property enterprises with bases aboard are defined as SMEs undertaking expansion overseas. According to this survey, SMEs undertaking expansion overseas comprised 15.8% of respondents (1,190 companies).

36) AccordingtoMETI’sWhite Paper on International Economy and Trade 2008, comparing Japanese enterprises which established Chinese manufacturing bases looking for cheaper labor in the Chinese market to expand their business, and American enterprises which from the beginning expanded their business placing greater emphasis on selling locally than on manufacturing, the profit ratio of American companies isatahigherlevelthanJapaneseones.SeeFig.2-3-23oftheWhite Paper on International Economy and Trade 2008.


89

Section 2

Fig. 2-2-21 Reasons for expanding overseasThe main reason for large enterprises is “market development and sales promotion in the region,” and for SMEs is “cost-down production due to cheap labor”

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Statistics based only on enterprises that answered that they are engaged in overseas expansion. 2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law.

44.247.3

20.7

51.6

25.2

16.7

5.91.4 2.2

68.5

33.1

26.4

44.9

30.9

16.9

3.91.7 3.4

0

10

20

30

40

50

60

70

80

(%)

Mar

ket d

evelo

pmen

t

and

sales

pro

mot

ion in

the

regi

on

Loca

l pro

cure

men

t

of p

rodu

cts,

parts

and

raw

mat

erial

s

Gath

erin

g loc

al in

form

ation

Cost

-dow

n

pro

duct

ion d

ue

to c

heap

labo

r

Keep

ing

up w

ith

bus

ines

s par

tner

s’

exp

ansio

n ov

erse

as

Busin

ess p

artn

ers’

requ

est t

o en

ter

ove

rsea

s mar

ket

Secu

ring

out

stan

ding

loca

l p

erso

nnel

Stre

ngth

enin

g

net

work

with

loca

l

gov

ernm

ent i

nstit

ution

s Othe

r


Fig. 2-2-22 Relationship between overseas expansion and the percentage of operating profit in salesRegardless of being in the manufacturing industry or a non-manufacturing industry, enterprises carrying out direct exports tend to have a higher percentage of operating profit in sales

Source: Recompiled from METI’s 2007 Basic Survey of Japanese Business Structure and Activities (2009).Note: Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law.

3.7

2.8

4.7

2.42.1

1.7

2.4

1.7

5.3

4.1

5.5

3.63.9

2.3

2.92.5

4.4

2.9

4.9

2.5

3.3

1.9

2.6

2.0

-

1.0

2.0

3.0

4.0

5.0

6.0

(%)

Yes No Yes No Yes No Yes No

Overseas premises Direct exports Overseas premises Direct exports

Manufacturing Non-manufacturing

SMEsLarge enterprises TotalPercentage of operating profit on sales


90

Fig. 2-2-23 Effects of engaging in direct exports and indirect exports on business performanceAbout 80% of SMEs that conduct direct exports and about 70% that conduct indirect exports reported that it had a positive effect on business performance


refers to exports carried out through a third party, such as a trading company, wholesale trader, or export agent within Japan with the knowledge of the export partner.

2. Responses by enterprises who conduct either direct exports or indirect exports about whether they think direct exports or indirect exports have a positive effect on business performance.


1.71.7

0.9

1.9

1.7

1.8

0% 100%

Direct exports

Indirect exports

Affects business performance Somewhat affects business performance Cannot say either way

Does not affect business performance much Does not affect business performance It is unrelated to business performance

52.752.7

32.332.3

26.226.2

35.335.3

16.916.9

25.225.2

Approx. 70%

Approx. 80%

3.63.6

Fig. 2-2-24 Effective policies for the development of overseas markets Many SMEs cite “operations which make use of business connections in Japan,” “introductions and recommendations by business partners” and other everyday business activities as effective policies for the development of markets overseas; a high proportion of enterprises also found “use of trading companies and wholesale traders” for indirect export to be an effective policy

59.7

47.6

22.0

43.2

7.9

13.0

5.5 7.2

22.4

4.0

13.010.9

0

10

20

30

40

50

60

70

(%)

Oper

ation

s whi

ch

mak

e us

e of

bus

ines

s

con

nect

ions i

n Ja

pan

Intro

duct

ions a

nd

reco

mm

enda

tions

by

bus

ines

s par

tner

sIn

trodu

ction

and

reco

mm

enda

tions

by

loca

l influ

entia

l fig

ures

Use

of tr

adin

g

com

pani

es a

nd

who

lesale

trad

ers

Recr

uitm

ent o

f

fore

igne

rs w

ho h

ave

had

exp

erien

ce

stud

ying

in J

apan

Recr

uitin

g

out

stan

ding

loca

l

sales

pers

ons

Oper

ation

s whi

ch

mak

e us

e of

the

local

com

mun

ityBu

sines

s mat

chin

g

by J

ETRO

, etc

.Pa

rticip

ation

of

dom

estic

and

ove

rsea

s exh

ibiti

ons

and

sam

ple

fairs

Use

of w

ord-

of-m

outh

Use

of in

tern

et

such

as o

wn

com

pany

’s we

bsite

Prom

otion

of i

mag

e o

f own

com

pany

’s br

and

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Statistics based only on SMEs. 2. Due to multiple responses, the total exceeds 100.


91

Section 2

Fig. 2-2-25 Effective measures for the development of overseas marketsA relatively large percentage of SMEs gave “lowering customs duties on parts and finished products” and “strengthening protection of intellectual property rights by policing counterfeit goods, etc.” as examples of effective measures; they also thought that development of the EPA and WTO processes was effective

52.3

19.7

43.2

20.1

7.8

39.3

23.2

8.311.4

20.916.9

41.0

0

10

20

30

40

50

60(%)

Lowe

ring

cust

oms

dut

ies o

n pa

rts a

nd

fini

shed

pro

duct

sLib

erali

zing

the

serv

ices

field

and

ens

urin

g th

e

tran

spar

ency

of l

aws

and

regu

lation

s

Stre

ngth

enin

g pr

otec

tion

of i

ntell

ectu

al pr

oper

ty

righ

ts b

y poli

cing

cou

nter

feit

good

s, et

c.Im

prov

ing

the

tran

spar

ency

and

har

mon

izatio

n of

bas

ic

aut

hent

icatio

nIn

disc

rimin

ate

and

fair

syst

em o

f

acc

eptin

g in

vest

men

ts

Acce

lerat

ing

pro

cedu

res f

or tr

ade

and

inve

stm

ent

Doub

le ta

xatio

n a

void

ance

Avoid

ance

of

dup

licat

e pa

ymen

t for

socia

l insu

ranc

e

Facil

itatio

n of

visa

pro

cedu

res

Main

tena

nce

of

infra

stru

ctur

e su

ch a

s

elec

tricit

y, wa

terw

orks

and

road

sDe

velop

men

t of

hum

an re

sour

ces t

hrou

gh

indu

stria

l coo

pera

tion

Ensu

ring

secu

rity

and

safe

ty


(2) Efforts aimed at the development of markets overseas by SMEs

Many SMEs cite “operations which make use of business connections in Japan,” “introductions and recommendations by business partners” and “use of trading companies and wholesale traders” as effective in developing markets overseas (Fig. 2-2-24). Sub-section 1, showed that grasping customer needs is important in the development of new products and technologies, and that “everyday business relationship” is important as a means of gathering information for that purpose. However, it is clear that contact with customers is important for SMEs in developing markets overseas as well.

As previously demonstrated, despite exports currently falling due to the global economic slowdown, exports by

SMEs to Asia which are continuing to show positive growth are still large. In order to help SMEs benefit and profit from this trade and thus lead to further growth, it is important to revitalize trade by such means as trade liberalization.

When SMEs were asked about effective measures for developing markets and expanding overseas, a large num-ber gave “lowering customs duties on parts and finished products” and “strengthening protection of intellectual property rights by policing counterfeit goods, etc.” as examples (Fig. 2-2-25). In the future, it is important for us to continue to provide an environment in which SMEs can actively tackle the issues of developing markets and expanding overseas through measures such as these and the promotion of free trade.


92

An SME which succeeded in developing its market overseas through the local manufacture of high value added products by exploiting export processing zone

2-2-7

Based in Tokyo’s Minato City, and with a work-force of 215 and capital of ¥257.60 million, Kyoshin Kogyo Co., Ltd. is a parts manufacturer whose main products are pressed and resin molded goods such as tab and taping terminals which are used as input terminals mounted on printed circuit boards, and for use in home appliances and car electronics. It has expanded to three factories within Japan, and in 1995 set up a Vietnam plant, while at the same time establishing a sales base in Singapore.

The trigger for its advance into Vietnam was the overseas presence of its business partners, number-ing as many as 700 Japanese companies. It was impressed by the location of the Tan Thuan Export Processing Zone in Vietnam, the infrastructure and the hospitable systems of the local government, and thus decided upon it as its destination for advance. Now, it has even set up a second plant in the same industrial complex, and boasts a local workforce of 250.

Since the labor in Vietnam is so low in price, there is a tendency for companies to manufacture labor-intensive products there. However, Kyoshin Kogyo dared to be different, and specialized in products requiring high-level technology, which other companies found to be a difficult match. As it is able to supply the high-grade components which were once thought hard to procure in Vietnam, Kyoshin Kogyo has received high praise from other Japanese enterprises as well.

At present, 40% of the products manufactured at the Vietnam plant are sold on the Vietnamese market, 30% are exported to Japan, and the remaining 30% are exported to other countries such as Thailand, Malaysia, Singapore, China and Hong Kong.

In the future, the company plans to continue advancing its market development in the grow-ing Asian market thanks to its bases in Vietnam and Singapore.

Case

A business model which uses a free trade zone to enable sales through a Japanese system2-2-8

Founded in 1560, and with a current workforce of 310 and capital of ¥96 million, Nabeya Bi-tech Kaisha is a cast metal and high-tech machine com-ponent manufacturer, carrying out a system of “diversified products and micro-scale production.” It was selected as one of the 300 of Japan’s Vibrant Monodzukuri (Manufacturing) SMEs, 2006.

The company carries out thorough multi-prod-uct low-volume manufacturing with its strength in “diversified products and micro-scale production,” a system by which it can produce even a single unit of a specific component. In order to export to China which continues to undergo economic growth, Bi-tech sought to answer the question of how to link products made by the “diversified products and micro-scale production” method to sales in China. In the process of doing so, Bi-tech obtained information on the Shanghai Waigaoqiao Free Trade Zone from the Gifu Economic and Indus-trial Promotion Center, and took advice from an

SME internationalization support adviser from the Organization for Small & Medium Enterprises and Regional Innovation, Japan, to devise a method for selling its “diversified products and micro-scale production” products in China. Specifically, it decided to manage the export operations itself without entrusting the work to another company, and rent a warehouse within the Free Trade Zone, within which the products it exports from Japan can be stored temporarily as stock. Then, by carry-ing out customs clearance only on the amount for which an order has been received (split clearance), the company manages to ensure delivery in a short span of time, while minimizing customs duties, value-added tax (VAT) and shipping costs.

Nabeya Bi-tech Kaisha can be considered a fine example for other SMEs due to its success in using this method to export products made by its system of “diversified products and micro-scale production.”

Case


93

Section 2

4. SMEs’ efforts to make salable products

So far the necessity of grasping customer needs and two methods employed for market development, electronic commerce and overseas strategies have been discussed. However, the most important thing is how SMEs make use of their customer needs once they have understood them, in order to make “salable products.” This sub-section will look for hints in making “salable products” by comparing the efforts of SMEs that have managed to develop hit products in the past, with SMEs that have not yet been blessed with a hit product.37)

(1) The situation regarding hit productsFig. 2-2-26 shows the percentage of enterprises that

have succeeded in developing hit products based on the Survey of Market Capture and Intellectual Property. According to this figure, among enterprises with a work-force of 100 or fewer, around 40% have been blessed with a hit product, but in enterprises with workforces of greater than100andthosewithworkforcesgreaterthan300,thepercentage with hit products is higher.

The time taken to develop a hit product, put it on the market and move it into the black will be the next area of focus. Fig. 2-2-27 shows that for SMEs, each period of development, putting it on the market, and moving it into the black, is reached sooner than in large enterprises. With regard to the development stage in particular, it is common in SMEs for the hit product to be developed in fewer than three years, which is a considerably short period compared to large enterprises.

37) TheodoreLevittsaid“Whatitoffersforsaleisdeterminednotbythesellerbutbythebuyer…Thesellertakescuesfromthebuyerinsuchawaythattheproductbecomesaconsequenceofthemarketingeffort,notviceversa.”SeeT.Levitt(2007)p.19.PhilipKotlersaid“Today,marketing must be understood not in the old sense of making a sale – ‘telling and selling’ – but in the new sense of satisfying customer needs.” See P. Kotler (1999) p. 7.

Fig. 2-2-26 Whether or not hit products have been developed by employee sizeThere is little difference between enterprises with a workforce of up to 100 employees; larger enterprises with more than 100 employees tend to develop more hit products

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Hit products refers to new products, technologies and services planned and developed within the past 10 years that

have made a considerable contribution to a company’s earning. 2. Statistics based only on SMEs.

0% 100%

Up to 20

21-50

51-100

101-300

301 or more

Hit products have been developed Hit products have not been developed

43.043.0

42.542.5

41.941.9

48.448.4

53.853.8

57.057.0

57.557.5

58.158.1

51.651.6

46.246.2


94

(2) Efforts aimed at making salable productsWhat kind of efforts are the SMEs that have succeeded

indevelopingahitproductcarryingout?LookingatFig.2-2-28, it can be seen that SMEs carrying out “integration of manufacturing and services” have more hit products. This is, as seen in sub-section 1, thought to be due to being able to grasp the needs of their customers through

direct contact with them.Next up for discussion is the relationship between

exporting and establishing bases overseas, and hit prod-ucts. SMEs that engage in export and SMEs that possess bases overseas tend to be more commonly blessed with hit products (Fig. 2-2-29). This suggests that many SMEs with good business performance are also acquiring new

Fig. 2-2-27 Time required to produce a hit productFor SMEs, each period including development, putting it on the market, and moving to the black is reached sooner than in large enterprises


have made a considerable contribution to a company’s earning. 2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law.

0% 100%Three years or more

SMEs

Largeenterprises

SMEs

Largeenterprises

SMEs

Largeenterprises

Less than one year One year or more and less than two years

Two years or more and less than three years

11.511.5

3.83.8

19.519.5

15.715.7

15.315.3

17.117.1

37.837.8

29.329.3

48.148.1

39.639.6

38.438.4

29.529.5

25.225.2

27.827.8

16.116.1

26.926.9

18.618.6

24.024.0

25.425.4

39.139.1

16.316.3

17.917.9

27.827.8

29.529.5

Tim

e ta

ken

to d

evel

op p

rodu

ctTi

me

take

n to

put

on

mar

ket

Tim

e ta

ken

to m

ove

into

the

blac

k

Fig. 2-2-28 Integration of manufacturing and services (classified by whether hit products have been developed or not)Enterprises that have developed hit products tend to carry out “integration of manufacturing and services”



0% 100%

Has developed hit products

Has not developed

hit products

Has not developed

hit products


Participates in integration of manufacturing and services

Does not participate in integration of manufacturing and services

32.032.0

19.919.9

49.949.9

38.738.7

68.068.0

80.180.1

50.150.1

61.361.3

Man

ufac

turin

g to

serv

ices

fiel

dNo

n-m

anuf

actu

ring

tom

anuf

actu

ring

field


95

Section 2

customers “regardless of whether they are at home or abroad” (preceding Fig. 2-2-6). It may be assumed there-fore that when an SME develops a product which agrees with the customer needs, it will be easier to link it to increased sales if it possesses a large number of custom-ers (whether they are in Japan or not), thereby turning it

into a hit product.The percentage of enterprises blessed with hit prod-

ucts is higher among those which are collaborating with outside entities in the development of new products and technology(Fig.2-2-30).ThissuggeststhatforSMEswithscarce management resources, the effective use of external

Fig. 2-2-29 Relationship between hit products and overseas expansionA higher percentage of enterprises that possess bases overseas tend to develop hit products



2. Hit products refers to new products, technologies and services planned and developed within the past 10 years that have made a considerable contribution to a company’s earning.


64.0 64.0

36.8

55.358.8

41.0

36.0 36.0

63.2

44.741.2

59.0

0

10

20

30

40

50

60

70

(%)Has developed hit products Has not developed hit products

Direct exports Indirect exports No exports Has bases overseas (has production plants)

Has bases overseas (does not have

production plants)

Does not have bases overseas

Fig. 2-2-30 Relationship between hit products and collaborations by employee sizeWhen it comes to developing new products, enterprises that collaborate with outside entities tend to develop more hit products for all workforce sizes



0% 100%

Has collaborationsDoes not have collaborations





Up to 20

21-50

51-100

101-300

301 or more

Has developed hit products Has not developed hit products

71.471.4

44.844.8

71.571.5

39.939.9

71.371.3

45.445.4

73.273.2

51.251.2

81.581.5

52.052.0

28.628.6

55.255.2

28.528.5

60.160.1

28.728.7

54.654.6

26.826.8

48.848.8

18.518.5

48.048.0


96

resources when developing new products and technology is easily linked with the development of hit products.38)

(3) Relationship with markets considered important by SMEs for making salable products

Fig. 2-2-31 shows the percentage of enterprises inwhich hit products have been developed for each of the market types considered important by SMEs when grasp-ing consumer needs. According to this figure, there are more enterprises blessed with hit products among those which focus on “niche markets” than there are among enterprises which place importance on “mass markets.”

(4) Differentiation in order to make salable products

When SMEs develop new products and technologies, it is important for them to differentiate themselves from

other companies. Fig. 2-2-32 shows how the points ofdifferentiation vary between enterprises which have developed hit products and those which have not. Enter-prises which have developed hit products differentiate themselves most in having “a system for making profit (a business model),” “brand strength,” and “planning and proposal capabilities.” It is worthy of attention that accord-ing to this figure, “technological strength” is not seen as a factor of differentiation leading to a difference between enterprises which have developed hit products and those which have not. It is difficult for SMEs to differentiate themselves from other companies in the same industry effectively by technological strength alone. We can there-fore assume that this suggests the importance of adding “a system for making profit (a business model),” “brand strength,” and “planning and proposal capabilities” to the factors by which they differentiate themselves.

Fig. 2-2-31 Relationship between hit products and market types considered to be important for grasping consumer needsEnterprises that consider domestic and overseas niche markets to be important tend to develop more hit products

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Statistics based only on enterprises that answered that they considered trends among customers and customer needs

to be important as sources of ideas and concepts in order to produce new technologies, products and services. 2. Hit products refers to new products, technologies and services planned and developed within the past 10 years that

have made a considerable contribution to a company’s earning. 3. Statistics based only on SMEs. 4. Statistics based only on those whose answers indicated “important” with regards to the degree of importance in each

market type.

49.5 50.555.8

44.2

53.6

46.4

64.3

35.7

0

10

20

30

40

50

60

70

(%)


Domestic mass market Domestic niche market Overseas mass market Overseas niche market

Has not developed hit products







38) FordetailsregardingcollaborationbySMEs,seePart3,Chapter3ofthe2008 White Paper on Small and Medium Enterprises in Japan. For details on the partners in collaboration, see Appended note 2-2-12.


97

Section 2

Fig. 2-2-32 Factors of production differentiation classified by whether hit products have been developed or notEnterprises which are developing hit products differentiate themselves most in having “a system for making profit (a business model),” “brand strength,” “planning and proposal capabilities,” “product strength” and “after-sales service”

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Hit products refers to new products, technologies, and services planned and developed within the past 10 years that

have made a considerable contribution to a company’s earning. 2. Statistics based only on SMEs. 3. Due to multiple responses, the total exceeds 100.

50.0

56.0

61.4

50.6

43.2 43.7

53.2

61.0

44.444.4

36.8

50.0

44.0

38.6

54.3

49.4

56.8 56.3

46.8

39.0

55.6

63.2

0

10

20

30

40

50

60

70

80

(%)

Tech

nolog

ical

stre

ngth

Prod

uct s

treng

th

Plan

ning

and

pro

posa

l cap

abilit

ies Price

com

petit

ivene

ssSa

les, a

nd sa

les

and

mar

ketin

g c

apab

ilities

Resp

onse

to

shor

t dea

dlin

es a

nd

qui

ck re

spon

se to

clie

nts

Resp

onse

to sm

all o

rder

s

and

ord

ers w

ith

small

lots

of m

ultip

le p

rodu

cts

Afte

r-sale

s se

rvice

Bran

d st

reng

th

A sy

stem

for

mak

ing

prof

its

(a b

usin

ess m

odel)

Com

bine

d

stre

ngth

of g

roup Othe

r


69.769.7

30.330.3

45.745.7

An SME aiming to increase the “brand strength” of companies engaged in expansion overseas via its own strength in planning and proposals

2-2-9

Based in Tokyo’s Nakano City, with a workforce of 24 and capital of ¥10 million, COMSEL Co., Ltd. is an advertising and marketing agency whose 24 strong workforce, which includes staff from Korea, the U.S. and Hong Kong, together with collabora-tive partners in every corner of the world, provides pamphlets full of the company’s unique expertise, together with sales floor designs, posters and other PR tools. Furthermore, it provides a marketing strat-egy which uses the company’s unique know-how of the “Master-In/Application system,” clarifying the division of roles between head offices and local companies in global marketing strategies, and all without involving the mass media.

The marketing tools for global expansion which the company develops, in the case of turning a certain product into a brand and then marketing it for example, involve creating a copy that becomes the core concept of the product and a high-grade “master visual” which realizes the key visual aspects. While on one hand the logos and colors used in posters and other materials are unified, the other elements, such as photographs, can be selected freely thanks to the help of subsidiaries

and agencies in the country in question which give consideration to factors such as the national traits and business practices of that country. The develop-ment of these tools evokes a sense of participation by the agencies in each country, thereby helping to create a positive growth cycle through which effec-tive feedback is obtained.

COMSEL spotted early on that times were chang-ing and the power of the advertising mass media was waning. It thus carried out strategic sales plan-ning by reviewing the market, and accumulated marketing experience in overseas markets. Armed with marketing tools full of precise knowledge only available to such a company, it supports enterprises carrying out overseas expansion so they can pen-etrate their brand further, and make use of their brand strength.

The company’s clients have already included many major businesses such as Samsung, Toshiba and Panasonic, but for SMEs as well, the importance of brand strength is mounting. With this in mind, COMSEL plans to continue applying systems such as Master-In/Application, and to move forward in developing business with SMEs.

Case

Section 3 Protection and utilization of intellectual property by SMEs

98


In the preceding section, the ways in which SMEs are trying to gain a better understanding of the needs of their custom-ers while also working to generate new ideas and develop new products and services were examined. In this increasingly knowledge-driven economy, the intellectual property that new ideas represent is growing increasingly important. But how are SMEs protecting the intellectual property that they themselves have produced, and how are they utilizing this intellectual property in their own business activities?

In this section, SMEs are compared with large institutions in terms of how they are working to protect and utilize their intellectual property and especially how they are approaching the concept of “open innovation.” The issues facing SMEs when creating and implementing “intellectual property strategies” with which to effectively protect and utilize their intel-lectual property with the aim of facilitating further innovation will also be examined.

An SME which redirected its core business from manufacturing to the service of “laboratory engineering”2-2-10

Based in Tokyo’s Chiyoda City, with a workforce of 97 and capital of ¥100 million, Oriental Giken Inc. is an enterprise which originally manufactured and sold testing and measuring equipment for research and experimentation in the fields of science, medi-cine and biotechnology. However, because it faced a price war only with its previous line of business, it redirected its core business to a previously unknown area; the consultation and planning of equipment with the appropriate specifications for laboratories and other testing facilities.

With the know-how it has accumulated over many years as an equipment manufacturer, and its ability to understand the needs of researchers, the company’s strength is its arrangement capability, which under the concepts of “laboratory engineer-ing” and “laboratory design,” enables the planning and proposal of the best possible laboratories and other testing facilities that give due consideration to laboratory safety. Without clinging to the com-pany’s own technology, it actively introduces the

most advanced technology through business col-laboration with prominent manufacturers abroad and applies it in its laboratory designs. In 2005, it set up a new course through donations at The Insti-tute of Medical Science, The University of Tokyo, and then in 2009 it commenced joint research with the Tokyo University of Agriculture and Technol-ogy, Faculty of Engineering. By learning the needs of researchers working on cutting edge technology, it is aiming to increase its consulting and planning capabilities further.

Having ascertained the source of value added and cultivated a niche realm of business for itself, Oriental Giken’s competitive edge is derived from its combined strength of being able to match the needs of researchers (which it understands thanks to its interaction with universities) with the intro-duction of cutting edge technology from abroad and its own technological capabilities to create new value.

Case

1. Trends relating to intellectual property rights

First to be examined will be trends in the number of patent applications, an indicator of trends relating to intel-lectual property rights.

Worldwide, the number of patent applications has been increasing rapidly in recent years. The number of patent applications made by nonresidents39) increased by 270% from 1985 to 2006, and the proportion of the total number of applications taken up by nonresident applications also increasedfrom30%in1985to44%in2006.Fromthis,one can see that along with increasing globalization, the globalization of the intellectual property strategies of businessesisalsoaccelerating(Fig.2-3-1).

The number of patent applications submitted in Japan annually has been around the 400,000 mark since 1998, and this was the largest number of applications of any country in the world. However, in 2006 Japan was over-taken by the United States and now has the second highest annual number of patent applications 40)(Fig.2-3-2).

The number of patent applications in Japan has recently been slightly decreasing. This is believed to be due to a shift in patent application strategies amongst Japanese businesses from placing emphasis on defensive-ness by applying for and being granted large numbers of patents to focusing on gaining patents that are useful in the development of core business operations. Another reason believed to be responsible for the decrease is that with increasing globalization, businesses are placing

39) Nonresidentsreferstopeoplewhoarenotresidentinthecountryofapplication.40) While the number of patent applications submitted in Japan is now the second highest in the world, the number of patents submitted by

Japanesenationalsisstillthehighestintheworld(Appendednote2-3-1).


99

Section 3

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

(Cases)

(Year)

Approx. 1.76 million cases

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Residents Nonresidents

Appr

ox. 4

4%

770,109770,109

604,451604,451

615,073615,073

655,698655,698717,342717,342

280,995280,995283,125283,125

290,746290,746307,123307,123

319,868319,868

324,635324,635

303,996303,996325,621325,621

310,884310,884329,887329,887

375,725375,725406,465406,465

451,553451,553474,677474,677

508,730508,730

541,153541,153

606,549606,549

641,213641,213662,638662,638

700,109700,109700,799700,799

691,821691,821

676,379676,379

587,943587,943

621,637621,637

637,376637,376

626,921626,921678,186678,186

674,575674,575

698,334698,334713,164713,164

745,418745,418

822,283822,283

838,446838,446830,503830,503

860,925860,925

896,763896,763964,255964,255

994,525994,525

Fig. 2-3-1 Worldwide trends in the number of patent applicationsWorldwide trends have been increasing; the total number of applications made by nonresidents represents around 40% of the total

Source: WIPO Statistics Database (July 2008).

Fig. 2-3-2 Trends in the number of patent applications submitted to patent offices in the top five countriesThe number of patent applications in Japan continued to exceed 400,000 until 2006, but currently it has fallen below the 400,000 mark; Japan was overtaken by the U.S. to become the second highest country for the number of patent applications

Source: Japan Patent Office, Patent Administration 2008 Annual Report (2008).

24.2

27.129.6

32.733.4 34.2

35.8

39.1

42.6 43.9

40.2 40.543.7

43.9

42.1 41.3

42.3 42.7

40.9 39.6

3.7 3.75.1

6.38.1

10.5

13.113.1

17.3

21.124.5

7.6 8.1

10.210.5 10.6

11.914.0 16.0

16.6 17.1

8.2 9.010.1

11.0 10.611.711.7 12.4 12.9 13.5

14.1

0

5

10

15

20

25

30

35

40

45

50

98 99 00 01 02 03 04 05 06 07

U.S. Japan China South Korea Europe(10,000 cases)

(Year)


100

increasing importance on applying for patents overseas and are becoming more selective about the patent appli-cations they file domestically.41)

2. SMEs’ intellectual property-related activities

As was mentioned in the preceding paragraph, a large number of patent applications are submitted annually in Japan, but the patent applications submitted by SMEs represents only 12% of the total number of applications submitted by residents of Japan.42) While SMEs contrib-ute approximately half of the total added-value produced

by corporate businesses in Japan (Fig. 2-1-11 in Section 1), the percentage of patent applications by SMEs appears to be relatively small.43)

In order to gain an understanding of the activities related to the creation, protection, utilization, etc. of intellectual properties that SMEs are engaging in, this sub-section will analyze the findings of the Japan Patent Office’s Survey of Intellectual Property-Related Activi-ties 44) and Mitsubishi UFJ Research and Consulting Co., Ltd.’sQuestionnaire Survey on Market Capture and Intel-lectual Property Strategies (hereinafter referred to as the Survey of Market Capture and Intellectual Property).45)

41) Seep.2of theJapanPatentOffice’s,Patent Administration 2008 Annual Report. For information on changes in overseas applications by JapanesenationalsseeAppendednote2-3-2.

42) See p. 71 of the Japan Patent Office’s Patent Administration 2008 Annual Report. According to the Survey of Intellectual Property-Related Activities 2007 (recompiled), Japanese SMEs held an average of 5.7 domestic patents compared to an average 156.0 for large enterprises (Appendednote2-3-3).

43) ItshouldbenotedthatdatarelatingtotheproportionofpatentapplicationsmadebySMEsneedstobeanalyzedinavarietyofdifferentways.For example, according to the Ministry of Internal Affairs and Communications’ Survey of Research and Development (2008), the number of company staff members working in the area of research in Japan was 619,540, and 12.9% of those (79,855) were employed by SMEs (companies with 1 to 299 employees). As it is unclear how many patent applications are made by companies other than SMEs, it is impossible to make a precise comparison, but if one looks at the number of patent applications made per research worker one can see that in this respect SMEs may be submitting about the same amount of patent applications as other businesses.

44) SeeAppendednote2-3-4forinformationonthedataanalysismethod.45) A survey carried out in December 2008 targeting 55,000 business corporations (response rate was 15.7%).

Fig. 2-3-3 Strategies for patent applications and trade secretsAs a whole, SMEs have no set policy regarding patent applications and trade secrets, but a relatively larger percentage of SMEs than large enterprises state that they “keep patent applications to a minimum and protect intellectual property as trade secrets”; there are also more subcontractors who state that they “keep patent applications to a minimum and protect intellectual property as trade secrets”

20.120.1

50.550.5

7.67.6

0% 100%

SMEs

1. By large enterprises and SMEs

2. Subcontracting companies and non-subcontracting companies (SME manufacturers)

Large enterprises

Keep patent applications to a minimum and protect intellectual property as trade secrets

Aggressively acquires patent applications

Have no particular set policyEstablishes criteria for patent applications and trade secrets, and adheres to them

Not very important for operations

0% 100%

Subcontracting companies

Non-subcontracting companies

49.149.1 18.718.7

25.525.54.44.4 12.712.7

8.18.1

7.67.6

4.74.7

4.84.8

18.218.2

24.324.3

51.151.1

44.844.8

17.817.8

18.518.5

6.96.9

4.64.6

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 2. Subcontractors refers to those that received orders from larger businesses to manufacture and process products and

components as subsidiary or cooperating enterprises.


101

Section 3

(1) Current conditions surrounding SME patent applications

One reason for the relatively low proportion of pat-ent applications submitted by SMEs might be that they protect their technology and know-how as trade secrets 46) rather than by applying for patents to protect them.

Based on the Survey of Market Capture and Intel-lectual Property,Fig.2-3-3showswhatkindofpoliciesSMEs have relating to the protection of their intellectual property. While according to the graph, many SMEs state that they “have no particular set policy,” notably, more SMEs than large enterprises answered that they “keep patent applications to a minimum and protect intellectual property as trade secrets.” Also, those SMEs that accept work as subcontractors (hereinafter referred to as “subcontracting companies”) were more likely to answer that “have no set policy” or that they “keep pat-ent applications to a minimum and protect intellectual property as trade secrets” than those SMEs that do not work as subcontractors (hereinafter referred to as “non-

subcontracting companies”).Additionally,theJapanPatentOffice’sSurvey of Intel-

lectual Property-Related Activities shows the same trend. Fig. 2-3-4 is based on the Japan Patent Office’s surveyand shows the proportion of those large enterprises and SMEs that invented or devised something in fiscal 2006 that chose to treat it as corporate secrets and know-how. The graph shows that the percentage of SMEs that treated new inventions and innovations as corporate secrets and know-how was approximately three times as large as was the proportion of large enterprises. The percentage of those SMEs working in the fields of information and communications, transportation equipment, and electri-cal machinery that treated inventions and innovations as corporate secrets and know-how is particularly high.

So, why do SMEs try to keep patent applications to a minimum and protect intellectual property as trade and corporate secrets, and know-how? According to Fig.2-3-5,moreSMEsthanlargeenterprisesgaverea-sons such as the fact that “it may lead to the leaking of

46) Tradesecrethererefers to“corporatesecretsandknow-how”defined in theJapanPatentOffice’sSurvey of Intellectual Property-Related Activities.Hereinafter,“corporatesecretsandknow-how”willbeusedwhenquotingfromtheJapanPatentOffice’ssurveyand“tradesecrets”otherwise.

Fig. 2-3-4 Percentages of large enterprises and SMEs that treated new inventions and innovations as corporate secrets and know-howThe percentage of SMEs who treated new inventions and innovations as corporate secrets and know-how was approximately three times larger than the percentage of large enterprises that did so; the percentage of those SMEs working in the fields of information and telecommunications, transportation equipment, and electrical machinery that treated inventions and innovations as corporate secrets and know-how is particularly high

Source: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008).Notes: 1. New inventions and innovations refers to all those that were produced in the company and have been submitted to

the intellectual property department or the person in charge of intellectual property-related matters, regardless of whether or not they have been submitted for patent applications.

2. Calculations based on the number of corporate secrets and know-how divided by the number of new inventions and innovations. 3. Large enterprises refer to those other than SMEs as defined by the Small and Medium Enterprise Basic Law.

11.0

0.0

9.1

2.2 1.5

4.8

7.9

2.0

4.7

12.013.9

5.6

10.9

26.1

8.2

4.33.2 3.6 4.3

1.43.2 2.8 3.4

11.9

1.42.5 2.5

1.3 1.4

16.5

18.8

0.60.0

5.0

10.0

15.0

20.0

25.0

30.08.2

2.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

(%)(%) SMEsLarge enterprises

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102

Fig. 2-3-5 Reasons for keeping patent applications to a minimum and protecting intellectual property as trade secretsA relatively higher percentage of SMEs than large enterprises cited information leakage and high cost as reasons to “keep patent applications to a minimum and protect intellectual property as trade secrets”

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Statistics based only on answers from enterprises that answered “keep patent applications to a minimum and protect

intellectual property as trade secrets.” 2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 3. Due to multiple responses, the total exceeds 100.

59.9

12.2

25.923.1

44.2

14.8

2.2

50.0

0.0

41.7

33.3

25.0

16.7

8.3

0

10

20

30

40

50

60

70

(%) SMEsLarge enterprises

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Fig. 2-3-6 Percentage of enterprises that submit patent applications overseasThe percentage of SMEs that submit patent applications overseas is much lower than the percentage of large enterprises that do; looking by industry, the percentage of SMEs that have submitted patent applications overseas is lower than that of large enterprises in every industry except for the information and communications industry; on the other hand, a considerably large percentage of SMEs in the pharmaceutical manufacturing industry have submitted patent applications overseas

Source: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008).Notes: 1. Calculations based on the number of enterprises that submitted patent applications overseas divided by the number of

enterprises that submitted patent applications irrespective of whether they were domestic or overseas. Enterprises that submitted patent applications overseas refers to either international patent applications or overseas patent applications.


34.6

7.7

16.720.0

78.678.6

46.4

25.0

33.3

18.5

30.2

43.1

14.3

47.6

29.2

66.7

25.0

33.3

69.8

33.9

62.8 61.9

86.7 87.5

72.275.0

51.4

72.0

79.883.0 84.8

66.7

51.6

41.747.5

0

10

20

30

40

50

60

70

80

90

100


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103

Section 3

technical information” and the “high cost.” The “high cost” is also a more significant factor for SMEs than large enterprises.47)

Patent applications submitted overseas will now be examined. The percentage of SMEs that submit patent applications overseas is much lower than the percentage of largeenterprises thatdo(Fig.2-3-6).Lookingat thefigures for each industry, the percentage of SMEs that have submitted patent applications overseas is lower than that of large enterprises in each industry except for the information and communications industry; however, it is clear that a considerably large percentage of SMEs in the pharmaceutical manufacturing industry have also submitted patent applications overseas.

Finally, approximately one third of patent applications by businesses did not reach the stage where they actually make a request for examination.48) As is shown in Fig. 2-3-7,themostcommonreasongivenbylargeenterprisesas well as SMEs for not making a request for examination was the decision not to go ahead after considering the costs and benefits. Compared to large enterprises, a con-siderably smaller percentage of SMEs claimed “a change inbusinessstrategy”astheirreason.Onereasonforthismay be that SMEs possibly submit patent applications

and make requests for examinations soon after inventing something that fits in with their business strategy.

(2) The intellectual property-related activities of subcontracting companies

In (1), the situation surrounding patent applications by ordinary SMEs was discussed. Now a detailed examina-tion, paying special attention to patent applications by subcontracting companies, will be undertaken.

Though subcontracting and non-subcontracting com-panies produce an almost identical number of inventions and innovations per company, subcontracting companies apply for an average of 4.97 patents or utility models per company, and this is less than the average of 5.93 percompanyfornon-subcontractingcompanies(Fig.2-3-8).On theotherhand, subcontractingcompaniesprotectedan average of 4.58% of their own inventions and innova-tions as corporate secrets and know-how, a larger propor-tion than the 2.57% of non-subcontracting companies. The above data shows that subcontracting companies are more likely than non-subcontracting companies to protect their inventions as corporate secrets and know-howthanbyapplyingforpatents.Onecouldassumethatsubcontracting companies particularly prefer to protect

Fig. 2-3-7 Reasons for not making a request for examinationThe most common reason given by large enterprises as well as SMEs for not making a request for examination was the decision not to go ahead after considering the costs and benefits; compared to large enterprises, a relatively smaller percentage of SMEs gave “a change in business strategy” as their reason

44.5%

60.0%

14.5%

21.3%

1.9%

62.6%65.2%

45.2%

31.6%

0.6%0

10

20

30

40

50

60

70


Decided it was difficult to obtain patent right

Considered cost-benefit

A change in business strategy

Intended to keep other companies in check

Others

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Statistics based only on answers from enterprises that did not make a request for examination despite having

submitted a patent application. 2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 3. Due to multiple responses, the total exceeds 100.

47) As a way to lessen the burden of patent application costs, for corporations that are low in funds and items not approved by the Individual Assistance Act, there are burden reduction measures in place that reduce their patent examination request fees by half, and allow them to delay payment for three years of the patent fees payable for the first three years after acquiring a patent; and research and development-based SMEs may have their patent examination request fees and the first three years’ worth of patent fees reduced by half.

See http://www.jpo.go.jp/cgi/zangenmen2/exempt_chk.cgi for a simple test showing the necessary conditions that need to be satisfied. 48) SeetheJapanPatentOffice’sPatent Administration 2008 Annual Report.


104

inventions as trade secrets in this way because they fear leakage of technical details.49) A certain legal protection for trade secrets is provided under the Unfair Competition PreventionAct(ActNo.47of1993).Enhancingcompanyadministration structures is important from the standpoint of preventing leakage of technical information.50)

(3) Conditions surrounding the obtaining of patents by SMEs

Earlier, in (1), the situation surrounding patent appli-cations by ordinary SMEs was discussed. The possession of patents by SMEs will now be discussed. SMEs hold 17.6% of all patents.51)Also,Fig.2-3-9,whichisbasedonthe Survey of Market Capture and Intellectual Property, shows the patent acquisition rates of large enterprises and

SMEs. A smaller percentage of SMEs than large enter-prises acquire patents, and the percentage of subcontract-ing SMEs that acquire patents is particularly low.52)

(4) Conditions surrounding SMEs’ utilization of patents

After the examination of how SMEs apply for and obtain fewer patents than large enterprises, it is time to lookatpatentutilizationrates.AccordingtoFig.2-3-10,SMEs in almost every industry have higher patent utiliza-tion rates than large enterprises do. Also, according to Fig. 2-3-11,whichshowsutilizationratesofpatentsacquiredin more detail, a large percentage of large enterprises that have acquired patents acquired them for defensive pur-poses and do not actually utilize them. Compared to the

Fig. 2-3-8 Intellectual property-related activities of subcontracted and non-subtracted companiesThough subcontracting companies apply for a small number of patents or utility models per company, their number of inventions and innovations is almost the same as that of non-subcontracting companies; subcontracting companies perform well in producing inventions and innovations but are more likely to protect them as corporate secrets and know-how

Sources: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008); Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).

Notes: 1. Statistics based only on relatable enterprises from Survey of Intellectual Property-Related Activities 2007 and Survey on Market Capture and Intellectual Property.

2. Statistics do not include enterprises that selected “having a group enterprise” as their answer in the Survey of Intellectual Property-Related Activities.

3. New inventions and innovations refers to all those that were produced in the company and have been submitted to the intellectual property department or the person in charge of intellectual property-related matters, regardless of whether or not they have been submitted for patent applications.

4. Subcontractors refers to those that received orders from larger businesses to manufacture and process products and components as subsidiary enterprises or cooperating enterprises.

5. Calculations based on the number of corporate secrets and know-how divided by the number of new inventions and innovations.


4.97

7.53

5.93

7.17

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Number of applications for patents and utility models per company

Number of inventions and innovations per company

Percentage of innovations and inventions that are protected as corporate secrets and know-how

4.58

2.57

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

(%)

Subcontracting companies Non-subcontracting companies

(Cases)

49) For information about why subcontracting companies keep patent applications to a minimum and where possible try to protect innovations as tradesecretsseeAppendednote2-3-5.

50) In Clause 6, Section 2 of the Unfair Competition Prevention Act, a “trade secret” must be: 1) controlled as a secret (controlled secrecy); 2) usefulforthebusinessoperationallyortechnologically(usefulness);and3)unknowntothepublic(non-publicinformation).Inthesameact,where there is wrongful acquisition, use, or disclosure of a trade secret, companies have a number of rights including the right to request an injunction(Section3),therighttodemandcompensation(Section4),therighttodemandhelptorestorethecompany’sconfidence.Also,inthe case of malicious actions, criminal penalties apply.

51) Seep.69of the JapanPatentOffice’sPatent Administration 2008 Annual Report. Also, according to the recompiled results of the Japan PatentOffice’sSurvey of Intellectual Property-Related Activities, while SMEs hold an average of 17.7 domestic patents per company, large enterprisesholdanaverageof209.3(Appendednote2-3-6).

52) Themoreemployeesacompanyhas,themorepatentstheytendtohold(Appendednote2-3-7).


105

Section 3

Fig. 2-3-9 Conditions surrounding the acquisition of patentsA smaller percentage of SMEs than large enterprises acquire patents and the percentage of subcontracting SMEs that acquire patents is particularly low; there is also a high number of subcontracting SMEs that used to hold patents but no longer hold any

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 2. Subcontractors refers to those that received orders from larger businesses to manufacture and process products and

components as subsidiary enterprises or cooperating enterprises.

77.077.0

54.954.9

19.919.9

0% 100%

SMEs

Large enterprises

0% 100%


1. By large enterprises and SMEs

2. Subcontracting companies and non-subcontracting companies (SME manufacturers)

Non-subcontracting companies

Holding patents Used to hold patents but no longer hold any Never acquired a patent before

3.23.2

32.832.8 12.312.3

31.531.5

38.438.4

14.114.1

11.011.0

54.454.4

50.550.5

Fig. 2-3-10 Percentage of patents acquired domestically that are being usedSMEs have higher patent utilization rates than large enterprises; their utilization rates are higher than large enterprises in every industry except wholesale and retail, and other non-manufacturing industries

62.5

82.288.5

72.1

53.6

65.658.4 60.4

73.4

62.556.0

67.1

53.6

70.176.9

39.236.0

46.446.440.6

45.952.9

45.8 43.2 44.247.5 46.3 49.0 47.2 46.7

50.3

41.043.5 45.6

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ort

equ

ipm

ent

Prec

ision

inst

rum

ents

Othe

r

man

ufac

turin

gIn

form

ation

and

com

mun

icatio

ns in

dust

ryW

holes

ale a

nd re

tail

Othe

r

non

-man

ufac

turin

g

Source: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008).Notes: 1. Number of patents used is a total of patents acquired domestically that are “currently used by own company” and

“licensed to other companies.” 2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law.


106

higher utilization rate of SMEs, one can clearly see the characteristics of the patent strategy employed by large enterprises. It would appear that although SMEs carefully select which of their in-house developed technologies and other innovations they apply for patents for, once they have acquired a patent, they tend to utilize it effectively.

ItisalsoworthnotingthataccordingtoFig.2-3-11,atenth of all patents held by large enterprises are licensable patents. Utilizing these licensable patents could be useful for SMEs working to bring about new innovations. That point will be covered in more detail in sub-section 4.

Fig. 2-3-11 Utilization of acquired patent rightsA large percentage of large enterprises acquired patents for defensive purposes and do not actually utilize them; Approximately a tenth of all patents held by large enterprises are licensable patents

Source: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008).Notes: 1. Defensive purposes means that the enterprise that owns the patent does not exercise its acquired patent right and

does not permit other companies from doing so. It is thus a right that enables the enterprise owning the patent to protect its business.

2. A licensable patent is a right that enables other enterprises to exercise the patent right by signing a license agreement regardless of recipient enterprise.


0% 100%

SMEs

Large enterprises

Use Have not used (defensive purposes) Have not used (licensable patents) Others

57.257.2

42.742.7

25.725.7

36.936.9

4.54.5

10.210.2

12.712.7

10.210.2

Fig. 2-3-12 Relationship with operating profit per employee (by classification of acquired patent)1) Enterprises that possess patents generate more operating profit per employee than those that possess none; 2) The same also holds true for enterprises that possess overseas patents compared to those that do not; 3) Enterprises that possess overseas patents generate more operating profit per employee than SMEs that only possess domestic patents

1.80

1.37

2.02

1.42

2.02

1.571.37

0.0

0.5

1.0

1.5

2.0

2.5

Operating profit per employee(¥1 million)

Patent enterprises Non-patent enterprises

1) Comparison of enterprises with and without patents

Overseas patent enterprises

Non-overseas patent enterprises

2) Comparison of enterprises with and without overseas patents

Overseas patent enterprises

Enterprises with only domestic patents

3) Comparison of overseas patent enterprises, enterprises with only domestic patents, and non-patent enterprises

Non-patent enterprises

Source: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008).Notes: 1. Patent enterprises refers to those that possess domestic or overseas patents. 2. Non-patent enterprises refers to those that do not possess patents. 3. Overseas patent enterprises refers to those that possess patents acquired overseas. 4. Non-overseas patent enterprises refers to those that do not possess any kind of patent, as well as those that

possess domestically acquired patents but not possess patents acquired overseas. 5. Statistics include SMEs and manufacturing businesses only.


107

Section 3

3. The relationship between business performance and intellectual property-related activities

Sub-section 2 looked at the conditions surrounding the intellectual property-related activities of SMEs. What relationship is there between these intellectual property-related activities and business performance? Here will be a look at the relationship between patent possession and business performance based on the find-ingsof the JapanPatentOffice’sSurvey of Intellectual Property-Related Activities.

According to Fig. 2-3-12, manufacturing SMEsthat possess patents generate more operating profit per employee than those SMEs that possess none, and the same holds true for SMEs that possess overseas patents compared to those that do not. SMEs that possess over-seas patents generate more operating profit than SMEs that only possess domestic patents and SMEs that pos-sess none.

Section 1 showed that SMEs that aggressively engage in research and development tend to have a high ratio of oper-ating profit to net sales. This information seems to indicate that SMEs that carry out research and development to produce their own original, patentable technology or prod-ucts tend to enjoy high profit margins, and that the patent system, including overseas patents, protects the intellectual property rights of SMEs from infringement and appears to contribute to maintaining their profit margins. The effects of acquiring intellectual property rights on SMEs will be examined further in sub-section 5 below.

4. SMEs’ approach to open innovation

As seen in sub-section 2. (4), a tenth of all large enter-prises’ patents are unutilized patents that are licensable to others, and according to an estimate by the Japan Patent Office, of the 1,036,868 patents in Japan, 521,308 53) of them are unutilized. According to the Survey of Market Capture and Intellectual Property, approximately 30%of all SMEs have an interest in licensable patents. The effective utilization of outside knowledge and technolo-gies, including those protected under licensable patents, is an important option for SMEs when planning their business strategies as they have very limited manage-ment resources. With the increasingly knowledge-driven global economy and the increasingly short life-cycle of products, interest in open innovation, which entails the

utilization of other companies’ technologies and coopera-tive development of technology with other companies, is increasing worldwide. This sub-section will focus on and analyze SMEs’ utilization of intellectual property from the standpoint of the intensification of open innovation.

First off will be a look at technology transactions carriedoutbySMEs.Fig.2-3-13showslevelsofcross-licensing 54) and paid licensing 55) by patent-holding SMEs and large enterprises. SMEs are generally not engaging very much in this kind of transaction.56)

Looking at Fig. 2-3-14, it can be seen that althoughSMEs engage in technology transfers relatively less than large enterprises do, their interest in technology transfer is strong. So, what kind of business technologies are they interested in? According to Fig. 2-3-15, there is strong

53) Seep.69oftheJapanPatentOffice’sPatent Administration 2008 Annual Report. It needs to be remembered here that, as the term “utilization” refers to the active utilization of a patent and is used in the context of the proportion of the total number of patents made up by “the number of patents a company actually asserts” and “the number of patents licensed out to other companies” it does not include defensive patents or licensable patents which are counted as unutilized patents.

54) Cross licensing refers to the act of two or more parties agreeing by contract to license to each other the use of intellectual property for which they hold patents.

55) Paid licensing refers to all acts of licensing based on the licensing agreement accompanying payment without the act of licensing the intel-lectual property rights possessed by another party, but does not include cross licensing.

56) For successful examples of companies specializing in a field of technology they are good at and achieved a major license transfer, see Case 2-1-9.

3.31.2

10.26.7

18.1

8.1

34.9

21.3

0

5

10

15

20

25

30

35

40

(%)

Domestic Overseas

Cross licensing

Domestic Overseas

Paid licensing


Fig. 2-3-13 Technology transactions relating to patentsOverall, SMEs engage in less technology transactions compared to large enterprises

Source: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008).

Notes: 1. Cross-licensing refers to the act of two or more parties agreeing by contract to license to each other the use of intellectual property for which they hold patents.

2. Paid licensing refers to all acts of licensing based on the licensing agreement accompanying payment without the act of licensing the intellectual property rights possessed by another party, but does not include cross licensing.

3. Percentages are based on the following calculations: “the number of cross licensing agreements with other companies divided by the number of cases of acquired rights,” and “the number of paid licensing agreements with other companies divided by the number of cases of acquired rights.”


5. Statistics based only on manufacturing.


108

Fig. 2-3-14 Acceptance of and interest in technology transferAlthough SMEs accept technology transfers relatively less than large enterprises do, their interest in technology transfer tends to be strong

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 2. Technology transfer refers to the acceptance of the transfer of patent rights or licensing agreements.

12.112.1

54.054.0

87.987.9

46.046.0

0% 100%

SMEs

Large enterprises

53.153.1

64.664.6

46.946.9

35.435.4

0% 100%

SMEs

2. Interest in technology transfer

1. Acceptance of technology transfer

Large enterprises

Interested in technology transfer Not interested in technology transfer

Has accepted technology transfer Has not accepted technology transfer

Fig. 2-3-15 Organizations looked to for technology transferPatent-holding enterprises are becoming increasingly interested in technology transfer from universities, and national and local governments’ public experimental and research institutes; enterprises that have not obtained patents before are most interested in technology transfer with major companies


28.5 28.8

21.6

13.4

16.8

3.24.8 4.6

3.31.3

19.6

26.824.4

13.5

16.6

1.53.8 3.7 2.9

1.6

15.4

19.2 19.7

11.8 11.6

1.6 2.5 2.4 1.8 0.80

5

10

15

20

25

30

35

(%) Holding patents

Unive

rsiti

es

Natio

nal a

nd lo

cal

gov

ernm

ents

’ pub

lic

exp

erim

enta

l and

rese

arch

inst

itute

s Majo

r c

ompa

nies SM

Es

Rese

arch

and

dev

elopm

ent v

entu

re e

nter

prise

sOv

erse

as u

nive

rsiti

es,

and

exp

erim

enta

l and

rese

arch

inst

itute

s

Over

seas

majo

r com

pani

es

Over

seas

SM

Es

Over

seas

rese

arch

and

dev

elopm

ent

vent

ure

ente

rpris

es Othe

r

Used to hold patents but no longer hold any Never acquired a patent before


109

Section 3

interest in technology transfer with national and local governments’ public experimental and research institutes, universities, and major companies.

SMEs on the receiving end of technology transfer tend to be more profitable than SMEs that do not receive such transfers (Fig. 2-3-16). What kind of issues are SMEsfaced with when they receive technology transfers?

AccordingtoFig.2-3-17,manySMEsmentioned“alackof the personnel and know-how required to apply to our company’s business,” and “a lack of information about patent and technology transactions” as issues they face. For example, for information about technology transfer from universities (which SMEs show a great of deal interest in), one would imagine that organizations such

Fig. 2-3-16 Relationship between engagement in technology transfer and company performanceSMEs that have accepted technology transfer tend to be more profitable than SMEs that have not

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Technology transfer refers to the acceptance of the transfer of patent rights or licensing agreements. 2. Statistics based only on SMEs.

0% 100%

Engaging in technology transfer

Not engaging in technology transfer

Substantial surplus Some surplus Break even Some deficit Substantial deficit

13.313.3

9.49.4

57.157.1

56.056.0

13.813.8

16.416.4

8.78.7

11.911.9

7.17.1

6.36.3

Fig. 2-3-17 Issues relating to receiving technology transferMany SMEs mentioned “a lack of the personnel and know-how required to apply to our company’s business,” and “a lack of information about patent and technology transactions” as issues they face regarding technology transfer

40.9

30.5

51.6

27.5

21.5

17.5

0.8

7.9

33.1

18.0

40.7

13.4

33.7

25.0

0.6

11.6

0

10

20

30

40

50

60


A lac

k of

info

rmat

ion

abo

ut p

aten

t and

tech

nolog

y tra

nsac

tions

Unsu

re h

ow to

disc

over

pro

misi

ng te

chno

logy

A lac

k of

the

pers

onne

l

and

kno

w-ho

w

requ

ired

to a

pply

to o

ur

com

pany

’s bu

sines

s

A lac

k of

kno

wled

ge

and

exp

erien

ce

abo

ut a

gree

men

ts

and

oth

er m

atte

rs

Licen

sing

fees

are

exp

ensiv

e

Ther

e ar

e fe

w pa

tent

s

that

our

com

pany

wou

ld

like

to e

xploi

t

Othe

rs

Ther

e ar

e no

par

ticul

ar is

sues

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Large enterprises refer to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 2. Due to multiple responses, the total exceeds 100.


110

as the Technology Licensing Organization (TLO) havean important role to play in providing information and acting as an intermediary. At present, SMEs account for approximately half of the companies to which technology transfer is conducted via the TLO. The staff membersworking as industry-university intermediaries at such organizations will continue to play an important role in helping SMEs effectively utilize the technologies coming out of universities 57)(Fig.2-3-18).

57) Seep.201-203ofthe2008 White Paper on Small and Medium Enterprises in Japan. Also, regarding the active introduction of technology from other parties, particularly those companies that have never acquired intellectual property are more likely to place emphasis on it from the standpoint of intellectual property strategy, and much attention has been focused on how technology can be transferred to such companies.

Fig. 2-3-18 Places to which universities and TLO transfer technologySMEs account for about half of the places where universities and TLO transfer technology

Newly established enterprises: 5.0%

Large enterprises: 49.7%Large enterprises: 49.7%

SMEs: 45.3%SMEs: 45.3%

Source: University Technology Transfer Association, Japan, University Technology Transfer Survey from the 2007 Annual Report on University Intellectual Property (2008).

An SME that has brought itself closer to the world of intellectual property by utilizing the “sleeping patents” of large enterprises

2-3-1

Located in Funabashi City, Chiba Prefecture, Shi-nohara Press Service Co., Ltd., with a workforce of 170 and capital of ¥90 million, is an SME that pro-vides repair and maintenance services for machine presses and other products. Their management philosophy is to be responsive to knowledge-intensive industries. They have been undertaking pioneering work like, for example, accumulating and analyzing data regarding the approximately 4,000 different types of machine presses on which they have carried out maintenance and coming to realize the importance of preventative mainte-nance before machine press inspections became legally mandated in Japan.

The company utilized a sleeping patent held by a major automobile manufacturer thereby defy-ing the common wisdom that the machine press maintenance industry was unrelated to the world of patents and intellectual property. The patent concerned a method of repairing machine presses without dismantling them through the injection of filler into gaps in their revolving parts. A patent distribution advisor in Chiba Prefecture liaised with a patent distribution advisor from the Chugoku Bureau of Economy, Trade and Industry and with the advice and support of these two advisors

Shinohara Press Service Co. Ltd was granted the right to execute the abovementioned patent.

Through these endeavors, the company’s staff now has a heightened awareness of patents and other aspects of intellectual property. The company has also gone on to acquire patents and provide related services for a series of original products it has produced such as the “Shutter Guard,” a safety device for machine presses that automatically opens and closes as a protective guard in coordination with the movements of the operator; the “Servo Driven Press Brake,” a high-precision position-sens-ing control device; and the “Improved Link Press” a machine with a simple mechanism that allows the operator to adjust the speed of the machine’s slide movement. This underlines the importance of viewing the fruit of such intellectual creation-related activities like collecting data about machine presses, creating manuals, preparing a quotation system, etc. in the broader context of intellectual property. It could be said that the experience of this company shows that even for SMEs working in fields that at first glance seem far-removed from patents and intellectual property, the strategic protection and utilization of intellectual property holds the potential to help them take giant steps forward.

Case


111

Section 3

5. The effects of acquiring intellectual property rights

The conditions surrounding patent applications and acquisitions by SMEs, as well as technology transfer, and the earnings conditions of companies involved in these kinds of activities were examined so far. How ought SMEs create and carry out strategies combining the cre-ation, protection and utilization of intellectual property in order to develop new products and services, and how can they use these strategies to increase their profits?

The following will analyze the relationship between “hit products” and SMEs’ intellectual property-related activities. The term “hit product” will be used to refer to products that have made a considerable contribution to a company’s earning over the last 10 years.

(1) The relationship between intellectual property-related activities and hit products

First will be a look at how many companies acquire intellectual property rights for their hit products. While just over 10% of large enterprises do not acquire intel-lectual property rights such as patents and other rights for their hit products, SMEs are much less likely to do so; a little less than 50% of SMEs have not acquired such rightsfortheirhitproducts(Fig.2-3-19).Whatrelation-ship exists between acquiring patents and other rights, and thedevelopmentofahitproduct?Fig.2-3-20showsthepercentage of SMEs that have managed to develop a hit product out of those that have acquired patents and those

that have not. According to the graph, a higher propor-tion of SMEs that have acquired patents have developed hit products. In addition, looking at SMEs that have not acquired patents, a higher proportion of those that were confirmed to have applied for patents had developed hit products than those SMEs that surveyors were unable to confirm had applied for patents.58)

Moreover, according toFig.2-3-21, lookingagain atSMEs that have not acquired patents, a higher proportion of those that had received technology transfers had devel-oped hit products than those SMEs that had not received technology transfers.

Do these trends indicate that acquiring and utilizing intellectual property rights contributes to developing hit products and boosting the profits of SMEs? Next will be a look at the effects of the acquisition of intellectual property rights.

(2) Tangible effects of intellectual property right acquisition

What do SMEs think about the effects of acquiring intellectual property rights? Fig. 2-3-22 shows the per-ception of SMEs split up according to the number of employees regarding the effects of acquiring intellectual propertyrightsonbusinesses.Onecanclearlyseethatthesmaller a company is, the more likely it was to mention “an improved credit rating” and “it helps to acquire new customers.” It is also noted that aggressively acquiring patents helps SMEs to improve sales through improving their credit rating and acquiring new customers.

An SME that utilized a national network of patent distribution advisors to find partner-companies to supply licenses

2-3-2

Based in Sapporo City, Hokkaido, Sanai Pack Cor-poration, with a workforce of 12 and capital of ¥10 million in capital), is a product marketing company that deals with all kinds of packaging materials. It has produced a series of groundbreaking, original products and has been aggressive in applying for patents and trademarks. One of these products is the Horei Meijin (patented, registered trademark), a box which seals in cool air with an inner lid and main body that are both double-layered, which can keep its contents at a cooler temperature than a polystyrene box for up to 15 hours. As it is made entirely from paper it is entirely recyclable and environmentally friendly.

However, cardboard packaging can be bulky and the transport costs can be quite high depend-ing on the lot size. Therefore, the company set on developing markets by licensing other packaging manufacturers in Japan to manufacture and sell

Horei Meijin, thereby saving on transportation costs. At present, they have concluded a total of 14 licensing agreements, and they credit this to the successful work of patent distribution advisors in matching them up with other businesses. There is a nationwide network of patent distribution advi-sors who are working to market the technology that makes up the company’s Horei Meijin boxes and other original products.

There are major benefits in utilizing patent dis-tribution advisors. If Sanai had approached other companies directly it would have taken time to reach agreements. Having the patent distribution advisors act as an intermediary between them can facilitate the process of concluding the licensing agreements. Sanai intends to continue finding new licensing partners by utilizing the services of patent distribution advisors.

Case

58) As is it is possible that there are companies that have applied for patents amongst those that could not be confirmed to have applied for them, itisimportanttoacceptthattheremaybeacertainmarginoferrorwhenlookingatFig.2-3-20.


112

Fig. 2-3-19 Acquiring intellectual property rights for hit productsWhile just over 10% of large enterprises do not acquire intellectual property rights for their hit products, SMEs are much less likely to do so, comprising nearly 50%


have made a considerable contribution to a company’s earning. 2. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 3. Due to multiple responses, the total exceeds 100.

38.5

17.9

24.2

13.6

0.3 0.6

45.3

69.8

24.2

51.7

28.9

3.40.7

13.4

0

10

20

30

40

50

60

70

80

(%)

Patent right Utility model right Trademark right Design right Author rights Other intellectual property rights

Do not hold any


Fig. 2-3-20 Relationship between acquiring patents and hit productsA higher proportion of enterprises that have acquired patents have developed hit products compared to those which have not; also, looking at SMEs that have not acquired patents, there is a large difference between those that were confirmed to have applied for patents and those that surveyors were unable to confirm had applied for patents in terms of the proportion that have developed hit products

Sources: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008); Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).

Notes: 1. Hit products refers to new products, technologies and services planned and developed within the past 10 years that have made a considerable contribution to a company’s earning.

2. “Holding patent rights” means enterprises that are currently holding patents; “Do not hold patent rights” means enterprises that used to hold patent rights in the past but no longer do so, as well as those that have never acquired patent rights.

3. “Holding patent rights” refers to sustainable enterprises in the Survey of Intellectual Property-Related Activities 2007 and Survey on Market Capture and Intellectual Property.

4. “Do not hold patent rights” refers to all enterprises where it is unclear whether they have submitted patent applications. 5. Statistics based only on SMEs.

0% 100%

Holding patent rights

Do not hold patent rights (submitted

patent application)

Do not hold patent rights (did not submit

patent application)


62.762.7

53.653.6

33.433.4

37.337.3

46.446.4

66.666.6


113

Section 3

Fig. 2-3-21 Relationship between acquiring patents and hit products A higher percentage of enterprises that currently hold patents develop hit products than enterprises

that do not hold patents; also, looking at SMEs that have not acquired patents, a higher percentage of those that had received technology transfers had developed hit products than those SMEs that had not received technology transfers.


have made a considerable contribution to a company’s earning. 2. Technology transfer refers to the acceptance of the transfer of patent rights or licensing agreements. 3. “Holding patent rights” means enterprises that are currently holding patent; “Do not hold patent rights” means enterprises

that used to hold patent rights in the past but no longer do so, as well as those that have never acquired patent rights. 4. Statistics based only on SMEs.

0% 100%

Engaged in technology

transfer

Hold

ing

pate

nt ri

ghts

Do n

ot h

old

pat

ent r

ight

s

Did not engage in technology

transfer

Engaged in technology

transfer

Did not engage in technology

transfer


65.965.9

61.661.6

49.749.7

33.033.0

34.134.1

38.438.4

50.350.3

67.067.0

38.8

22.4

34.534.5

53.4

41.8

38.437.1

8.6

17.7

0.9

8.2

29.9

18.418.4

32.2

48.148.1

36.236.231.8

34.1

7.4

16.1

1.1

9.7

29.2

16.4

30.830.8

50.450.4

38.538.5

32.631.3

4.2

11.111.1

1.6

8.5

23.2

16.2

33.533.531.6 33.033.0

3.1

11.5

1.4

8.9

27.4

19.2

39.737.037.0

27.427.4

30.1

39.7

1.4

13.7

2.7

6.8

0

10

20

30

40

50

60

(%) Up to 20

Bene

fited

pric

ing

Able

to d

omin

ate

the

mar

ket

Able

to e

limin

ate

imita

tion

good

s and

sim

ilar p

rodu

cts

An im

prov

ed c

redi

t rat

ing

Help

s to

acqu

ire

new

cus

tom

ers

Gain

ed e

xter

nal

app

eal

Help

s to

impr

ove

the

bran

d

Has b

ecom

e

eas

ier to

raise

fund

sEx

pand

ed c

oope

ratio

n

with

oth

er c

ompa

nies

and

bus

ines

ses Othe

r

No p

artic

ular

effe

cts

21-50 51-100 101-300 301 or more

45.845.8

29.629.6

Fig. 2-3-22 Effect of acquiring intellectual property rights on hit products (by employee size)The smaller a company is, the more likely it was to mention “an improved credit rating” and “it helps to acquire new customers”


have made a considerable contribution to a company’s earning. 2. Statistics based only on enterprises that answered that they had developed hit products. 3. Statistics based only on enterprises that acquired intellectual property rights for their hit products. 4. Statistics based only on SMEs. 5. Due to multiple responses, the total exceeds 100.


114

Do such effects of acquiring intellectual property rights actually contribute to improving the performance of SMEs? Fig. 2-3-23 shows how much of a beneficialeffect acquiring a patent for a hit product had on business performance according to the stage divided into three from the developmental stage to the stage at which the product became a hit product. According to the graph, no matter which stage the patent was applied for, 70% to 90% of SMEs answered that acquiring the patent had been a “major causative factor” or a “somewhat causative factor” in improving subsequent business performance. Onemayconclude from this thatSMEscan attempt toimprove business performance through the acquisition of patents. Also, according to the graph, the earlier SMEs acquire a patent, the greater the proportion of SMEs that say it was a causative factor in improving business performance. Does this mean that acquiring intellectual property rights such as patents at an early stage is an important tactic for SMEs?

Patent acquisition timing and the effects this timing has will be the next area of focus. According to Fig. 2-3-24, the most commonly mentioned effect was “animproved credit rating” and the SMEs that were most likely to mention that effect were those that had acquired a patent in the post-development pre-release phase. Also, looking at trademark acquisition timing and the effects this timing has, those SMEs that acquired a trademark during the developmental stage were more likely than otherwise to report that it improved their credit rating and that it helped them to acquire new customers. However, those SMEs that acquired a trademark during the post-development, pre-release phase were more likely than

otherwise to report the exclusion of imitation goods and similarproducts(Fig.2-3-25).

As can be seen from the above, the timing and effects of acquiring intellectual property rights differs according to the type of intellectual property and the type of effect, and it could be said that SMEs need to consider planning an intellectual property strategy that is most suitable for their business strategies as they move from the research and development stage to the product commercialization stage.

Looking at the relationship between whether intel-lectual property rights to protect a hit product have been acquired and the period required to develop the product, the longer it takes to develop a product the more likely acompany is toacquireapatent toprotect it (Fig.2-3-26).Onecanassumethat,generallyspeaking,thelongerit takes to develop a product the higher the development cost will be, which means that product development will have a major impact on an SME’s business performance. Therefore, in order to recover the considerable expense, the company will be inclined to protect it through the acquisition of a patent or other form of intellectual prop-erty right.

Fig. 2-3-23 Effect of acquiring intellectual property rights for hit products at certain stages of development on improving business performanceThe earlier SMEs acquire a patent, the greater the proportion of SMEs that say it was a causative factor in improving business performance


have made a considerable contribution to a company’s earning. 2. Statistics based only on enterprises that answered that they had developed hit products. 3. Statistics based only on enterprises that acquired intellectual property rights for their hit products. 4. Statistics based only on SMEs.

1.3

2.0

1.5

0.5

0.2

0.0

0% 100%

Developmental stage

Post-development, pre-release phase

Profit phase

Major causative factor Somewhat causative factor Unable to say either way

Not much of a causative factor Was not a causative factor at all

41.141.1

31.031.0

26.526.5

47.547.5

55.355.3

48.548.5

9.69.6

11.511.5

23.523.5


115

Section 3

Fig. 2-3-24 The timing of acquiring intellectual property rights for hit products and its effectsEnterprises that had acquired a patent in the post-development, pre-release phase were most likely to mention that it had “an improved credit rating” effect

33.3

27.2

36.6

54.5

40.4

35.037.5

9.6

17.2

1.3

6.7

29.2

17.6

29.4

58.4

39.1 34.5 35.0

4.3

13.1

1.1

7.3

25.3 19.5

31.0

51.7

31.0

41.4

34.5

8.0

25.3

2.3

10.3

0

10

20

30

40

50

60

70

(%) Developmental stage

Bene

fited

pric

ing

Able

to d

omin

ate

the

mar

ket

Able

to e

limin

ate

imita

tion

good

s and

sim

ilar p

rodu

cts

An im

prov

ed c

redi

t rat

ing

Help

s to

acqu

ire

new

cus

tom

ers

Gain

ed e

xter

nal

app

eal

Help

s to

impr

ove

the

bran

d

Has b

ecom

e ea

sier

to ra

ise fu

nds

Expa

nded

coo

pera

tion

with

oth

er

com

pani

es a

nd b

usin

esse

s

Othe

r

No p

artic

ular

effe

cts

Post-development, pre-release phase Profit phase



Fig. 2-3-25 The timing of acquiring trademark rights for hit products and its effectsEnterprises that acquired a trademark during the developmental stage were more likely than others to report that it improved their credit rating and that it helped them to acquire new customers; enterprises that acquired a trademark during the post-development, pre-release phase were more likely than others to report the exclusion of imitation goods and similar products



33.3

21.0

50.0

44.8

36.238.1

8.1

15.2

1.4

6.7

29.0

13.8

42.544.0

30.2 33.8

40.4

5.1

15.0

0.9

7.8

23.5

14.7

25.0

42.635.3

26.5

41.2

2.9

19.1

2.9

14.7

0

10

20

30

40

50

60

(%) Developmental stage

Bene

fited

pric

ing

Able

to d

omin

ate

the

mar

ket

Able

to e

limin

ate

imita

tion

good

s and

sim

ilar p

rodu

cts

An im

prov

ed c

redi

t rat

ing

Help

s to

acqu

ire

new

cus

tom

ers

Gain

ed e

xter

nal

app

eal

Help

s to

impr

ove

the

bran

d

Has b

ecom

e ea

sier

to ra

ise fu

nds

Expa

nded

coo

pera

tion

with

oth

er c

ompa

nies

and

bus

ines

ses Ot

her

No p

artic

ular

effe

cts

Post-development, pre-release phase Profit phrase

37.637.6


116

Fig. 2-3-26 Acquisition of intellectual property rights and the time required to develop a hit productA high percentage of enterprises that take a long time to develop a hit product are those that have acquired intellectual property rights, especially patent rights


have made a considerable contribution to a company’s earning. 2. Statistics based only on enterprises that answered that they had developed hit products. 3. Statistics based only on SMEs. 4. Due to multiple responses, the total exceeds 100.

18.915.4

19.2

11.5

0.3 1.0

59.6

32.3

16.5

23.0

12.8

0.2 0.4

50.0

43.2

21.5

27.0

16.0

0.4 0.3

40.5

53.6

19.1

26.6

13.6

0.3 0.9

34.1

0

10

20

30

40

50

60

70

(%)Less than one year

Patent right Utility model right Trademark right Design right Author rights Other intellectual property rights

Do not hold any

From one year to less than two years

From two years to less than three years

Three years and more

50.747.0

10.2

17.0

10.6 11.6

19.0

3.4 1.8 1.0

16.1

63.4

53.5

12.29.5 9.5

10.8 11.4

2.7 0.5 1.0

14.0

59.0

46.1

11.17.7 8.0 9.8

7.2

1.5 1.23.2

20.9

0

10

20

30

40

50

60

70

(%)Holding patents

Lack

of k

nowl

edge

abo

ut in

telle

ctua

l p

rope

rtyLa

ck o

f hum

an re

sour

ces

and

cap

ital

Lack

of

spec

ialist

s with

who

m to

con

sult

Proli

fera

tion

of

imita

tion

good

s and

pira

ted

prod

ucts

Leak

age

of

sales

secr

ets b

y

retir

ed e

mpl

oyee

s

Leak

age

of

tech

nica

l info

rmat

ion

via

clien

ts a

nd

par

ent c

ompa

nies

Resp

ondi

ng to

litig

ation

surro

undi

ng

infri

ngem

ent o

f rig

hts

Resp

ondi

ng to

pat

ent t

roll

Requ

est b

y

uni

vers

ities

to p

ay

com

pens

ation

for

unu

sed

pate

nts Ot

her

No p

robl

emat

ic

issu

es in

par

ticul

ar

Used to hold patents but no longer hold any Never acquired a patent before

Fig. 2-3-27 Issues surrounding intellectual property strategies (by whether patents have been obtained or not)Overall, a large number of enterprises mention a lack of knowledge about intellectual property, and a lack of human resources and capital; enterprises that had acquired patents in the past but no longer held any were the most likely to mention these problems


6. Issues surrounding the intellectual property strategies of SMEs

So far, SMEs’ intellectual property-related activi-ties and the effects that their acquisition of intellectual

property rights have been examined. What kinds of issues will SMEs face in the future when carrying out intellec-tualproperty-relatedactivities?AccordingtoFig.2-3-27,a large number of SMEs mention a lack of knowledge about intellectual property, and a lack of human resources


117

Section 3

and capital. SMEs that had acquired patents in the past but no longer held any were the most likely to mention these problems, and one might infer that this is because when they had acquired patents in the past they had keenly felt a lack of knowledge, personnel and capital, and so now no longer hold any patents. In order to foster innovation it is important for SMEs to protect the technology and products they develop by acquiring intellectual property

rights and to effectively utilize the knowledge and tech-nologies of third parties in developing new products. It is necessary to provide an environment in which SMEs are able to plan and put an intellectual property strategy into practice through the provision of information and training, and through support in terms of personnel and capital.

Developing an intellectual property strategy that can be used as a “weapon” in the global market2-3-3

Nabel Co. Ltd., with a workforce of 120 and capital of ¥82 million is an SME based in Minami Ward, Kyoto City, which developed Japan’s leading egg grading and packing system, and was chosen as one of the 300 of Japan’s Vibrant Monodzukuri (Manufacturing) SMEs, 2007.

The company was sued by a U.S. manufacturer for patent infringement, and this bitter experi-ence helped them to refine their approach to intellectual property-related matters. They hold a monthly study meeting at which employees from various departments such as the person in charge of intellectual property-related matters, the per-son in charge of sales, and the person in charge of development, work together to discuss tactics such as whether to apply for patents or make requests

for examination, whether to continue to hold on to certain patents, and other matters. Also, the company tries to raise employees’ motivation for making inventions by, for example, encouraging employees to come up with new inventions by financially rewarding those that help the company to acquire new patents, and by splitting up pay-ments received from court settlement proceedings and paying it out to all employees.

As a competitor in the global market, when nec-essary, the company acquires overseas patents and uses them as a “weapon” against rival companies. The company doesn’t only protect its intellectual property, it utilizes it strategically as an offensive tool, and one could say this makes it an example for other SMEs to follow.

Case

Creating a virtuous cycle by reinvesting royalty money earned from licensing out technology overseas into developing new technologies

2-3-4

Syvec Corporation, with a workforce of 45 and capital of ¥80 million is a company based in Shiojiri City, Nagoya Prefecture. The company uses the technical skills it has cultivated through the manu-facture of clocks and machine presses to develop dies used in producing ultra high-precision compo-nents and machine press processing services mainly aimed at the automobile industry. It was chosen as one of the 300 of Japan’s Vibrant Monodzukuri (Manufacturing) SMEs, 2006.

Because research and development-based com-panies cannot maintain an adequate development system if they establish themselves overseas, Syvec Corporation has not established any factories out-side of Japan, but by licensing out its technologies to overseas partner companies, it can provide its customers who have advanced into overseas mar-kets with components. The company invests the money it earns from royalties paid to it by licensees into its research and development base called the Value Technology Institute (tentative), and works on new areas of research and development in con-junction with clients and device manufacturers.

Unlike many other companies that attempt to protect their technologies as trade secrets, Syvec Corporation is constantly searching for compa-nies to which it can license out its technologies. However, in order to prevent leakage of technical information they do not license out their cutting edge technologies, and they always select the partner companies they license technologies to from the standpoint of legal compliance. When, for example, they supply components to a client operating in China, the tactic they use is to license their technology out to a listed company based in Singapore (where laws are strictly adhered to) and supply the components through that company’s manufacturing base in China, instead of transfer-ring technologies to local enterprises in China. In addition, they have succeeded in creating a positive capital flow by concluding contracts that ensure they receive a continuous flow of royalty payments until production comes to an end, and they use this steady flow of royalty money from overseas to develop new technologies.

Case

Section 4 Recruiting and working toward the development of the kind of skilled technical personnel that generate innovation

118


Section 1 looked at how a lack of the capital required to carry out research and development, a lack of research and devel-opment personnel, and/or a lack of sufficiently skilled personnel were major issues for SMEs when carrying out research anddevelopment-relatedactivities(Fig.2-1-31).Thissectionwillfocusonissuessuchastheskilledtechnicalpersonnelrequired to carry out research and development work, the ways in which SMEs are recruiting skilled technical personnel, and challenges for the development of these skilled technical personnel and related needs for promoting innovation.

An SME utilizing its intellectual property to better differentiate itself amidst fierce competition2-3-5

Based in Hashimoto City, Wakayama Prefecture, Hatano Industry Co., Ltd. with a workforce of 23 and capital of ¥10 million is a textile manufacturer that specializes in textile pleating.

With the industry facing the intensification of competition with textile manufacturers in China and other neighboring countries, the company has set its sights on moving into new fields through the use of textile pleating technology and has decided to move away from the field of clothing textiles and avoid competing with major compa-nies. Through attending inter-industry exchange meetings and other events to obtain information about other industries, the company came across certain technology from Europe, and working in conjunction with a European company succeeded in developing a type of blind produced using pleat-ing technology. However, as they neglected to acquire intellectual property rights, the technology

they had worked so hard to develop was copied by another company, leaving them very frustrated. After this experience, they worked to deepen their understanding of intellectual property rights, and moved to aggressively acquire them.

As when applying for patents, SMEs face the problems of limited capital and the risk posed by publication of the applications. Hatano Industry Co., Ltd has opted to keep some of its technology as trade secrets and simply have the patent applica-tions and other documents officially date stamped instead of making official patent applications.

Mr. Tomio Hatano, the company president, says that SMEs in particular need to utilize their intellectual property well, and he also says that he plans to continue placing emphasis on intellectual property strategy and to differentiate their prod-ucts by making use of the company’s technological development skills.

Case

1. The knowledge and abilities required of skilled technical personnel 59) and innovative human resources

(1) Changes in the knowledge and abilities required of skilled technical personnel

In order for SMEs to develop new innovative products and services, it is crucial for them to have skilled techni-cal personnel that can conceive of and implement new ideas when considering ways to improve research and development and production processes.

In November 2008, Mitsubishi UFJ Research and ConsultingCo.,Ltd.carriedouttheQuestionnaire Survey on the Passing on of Technology and Skills, and Human

Resources that Generate Innovation (hereinafter referred to as the Technical Human Resources Survey), which targeted SMEs in the manufacturing and telecommuni-cations industries.60) This survey will be used to look at the knowledge and abilities that SMEs require of skilled technical personnel.

Fig. 2-4-1 shows the knowledge and abilities that SMEs required of skilled technical personnel 5 years ago, those they require now, and those they will require in 5 years time. The graph shows that a high proportion of SMEs place emphasis on knowledge such as “extensive knowledge of multiple technologies and skills” and “spe-cialized knowledge of a certain technology or skill.” The graph also shows that more SMEs considered that skills

59) Here the term “skilled technical personnel” refers to people employed in the following four fields: 1) research, 2) product and technology development,3)qualitycontrolandproductionmanagement,and4)manufacturingandprocessing.

60) This survey targeted35,000businesscorporations in the“majorgroups”of theMinistryof InternalAffairs andCommunications’Japan Standardized Industrial Classification(revisedNovember2007):“12Manufactureoflumberandwoodproducts,exceptfurniture,”“13Manu-facture of furniture and fixtures,” “14 Manufacture of pulp, paper and paper products,” “15 Printing and allied industries,” “16 Manufacture of chemical and allied products,” “17 Manufacture of petroleum and coal products,” “18 Manufacture of plastic products, except otherwise classified,” “19 Manufacture of rubber products,” “20 Manufacture of leather tanning, leather products and fur skins,” “21 Manufacture of ceramics;stoneandclayproducts,”“22Manufactureofironandsteel,”“23Manufactureofnon-ferrousmetalsandproducts,”“24Manufac-ture of fabricated metal products,” “25 Manufacture of general machinery,” “26 Manufacture of production machinery ,” “27 Manufacture of business oriented machinery,” “28 Electronic parts, devices and electronic circuits,” “29 Manufacture of electrical machinery, equipment andsupplies,”“30Manufactureofinformationandcommunicationelectronicsequipment,”“31Manufactureoftransportationequipment,”“32Miscellaneousmanufacturingindustries,”“37communications,”“39Informationservices,”“40Internetbasedservices,”and“41Videopicture, sound information, character information production distribution.” The response rate was 11.2%.


119

Section 4

Fig. 2-4-1 Knowledge and skills that SMEs require of skilled technical personnelA high percentage of SMEs place emphasis on knowledge and skills such as “the ability to grasp the needs of customers and design products accordingly,” and “the ability to develop innovative technologies”

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on the Passing on of Technology and Skills, and Human Resources that Generate Innovation (November 2008).

Notes: 1. Statistics based only on SMEs. 2. Due to multiple responses, the totals exceed 100.

16.1

16.7

13.9

19.1

10.7

20.3

17.0

17.3

21.1

24.5

23.7

19.3

35.5

12.9

15.1

13.6

15.8

12.5

19.0

19.1

16.9

22.9

24.9

24.3

22.3

35.7

10.7

12.4

12.8

13.5

14.0

16.7

19.7

19.9

22.2

23.4

26.1

26.3

36.5

0 5 10 15 20 25 30 35 40(%)

Ability to identify problems in products andadvise on improvement

Communication and presentation skills required to grasp customers’ needs

The ability to handle various processes independently

The ability to develop innovative technologies

The ability to maintain and manage manufacturing facilities

The ability to grasp the needs of customers and design products accordingly

Knowledge of process management

Highly outstanding knowledge and skills

Knowledge and skills about quality management, verification and testing

Knowledge and skills about streamlining the production process

Specialized knowledge of a certain technology or skill

Knowledge and skills about processing and assembly

Extensive knowledge of multiple technologies and skills

Knowledge and abilities required of skilled technical personnel 5 years ago

Knowledge and abilities required of skilled technical personnel now

Knowledge and abilities that will be required of skilled technical personnel in 5 years

such as “the ability to grasp the needs of customers and design products accordingly” and “the ability to develop innovative technologies” are more important now than they were five years ago, and that these skills will be more importantinfiveyearsthantheyarenow.Onecaninferthat this indicates that the emphasis placed on the ability to grasp the needs of customers, conceive of new ideas, and develop innovative technologies is growing year by year. Section 2 showed that SMEs consider consumer trends and customer needs to be the most important sources of ideas and concepts when developing new products and services (Fig. 2-2-1).

Fig. 2-4-2 is based on the Technical Human Resources Survey and shows the answers supplied by SMEs in the manufacturing and telecommunications industries in more detail. The graph is split into five different fields: 1) basic research and development, and anticipatory research and development of basic technologies; 2) product and technologydevelopment; 3) enhancement and improve-ment of preexisting products; 4) enhancing quality and

production management methods; and 5) enhancing production lines and manufacturing methods. The graph shows the sources from which SMEs that managed to successfully come up with an innovative technology in the past five years in any of those five fields obtained their ideas. The graph shows that “consumers’ needs and trends” and “the ideas and inventiveness of company staff” were popular answers in each of the five fields as sources of ideas, and this result is the same as that of Fig. 2-2-1. In addition, the fact that “the seeds of new tech-nologies emerging from universities and public research laboratories” was a relatively unpopular answer in the field of “enhancing production lines and manufacturing methods,” but was relatively popular in the field of “basic research and development, and anticipatory research and development of basic technologies,” shows the different characteristics of innovative technology in each of the five fields.

Though a flash of inspiration is an important factor in innovation, the great 19th Century inventor Thomas


120

Edison is quoted as saying “genius is 1 percent inspiration and 99 percent perspiration.” When working on inventing the light bulb, Edison carried out a huge number of experi-ments, and his words accurately express the amount of effort that is required in inventing something.61) So what do SMEs feel is the correct proportion of inspiration and perspiration with regards to invention (genius)? Accord-ing to the Technical Human Resources Survey, the average answer from SMEs was “genius is 18 percent inspiration and 82 percent perspiration.” Although they also agree that perspiration plays a greater role than inspiration, they seem to think that inspiration plays a larger part than did Edison. When asked how large they felt the part played by inspiration was compared to ten years ago, though there was disagreement, the SMEs that answered that inspirationnowplayedalargerrole(approximately30%)slightly outnumbered the SMEs who answered that it now played a smaller role (approximately 20%) (Fig. 2-4-3).When theSMEs thatanswered that inspirationnowplayed a larger role were asked why this was, a majority of them replied that “product differentiation has grown in importance, thereby making inspiration more important than it once was.” As there is a diversity of needs relating to quality and design even with products that have the same basic function in today’s sophisticated consumer society, SMEs are presumably feeling the importance of inspiration when working to respond to these demands through greater product differentiation.

Fig. 2-4-2 Sources of technology and innovation ideas (classified by technology and innovation field)As sources of ideas, “needs and trends of clients and customers” and “the ideas and inventiveness of company staff” were popular answers among all of the technology fields


Notes: 1. Statistics based only on SMEs. 2. Due to multiple responses, the totals exceed 100.

77.5 78.8 79.0

69.466.0

63.063.0

51.955.8 57.1

55.0

67.0

48.1 45.7

39.5 37.834.4

31.434.7

30.7 29.7

18.5 18.9 21.721.7

27.5 24.720.320.3

18.118.1

24.1 25.0 23.9

30.8

23.4 22.015.8

14.920.320.3

14.814.812.612.6 13.9

11.7

31.3

17.312.6

9.07.37.3

24.2

12.0 11.6 11.8 9.9

0

10

20

30

40

50

60

70

80

90

Basic research and development, and anticipatory research and

development of basic technologies

Product and technology development

Enhancement and improvement of

preexisting products

Enhancing quality and production management

methods

Enhancing production lines and manufacturing methods

Customers’ needs and trends Ideas and inventiveness of company staff Seeds of technologies from own company

Trends of competitors and industry groups Exchange with other companies of the same industry Trends of suppliers of raw materials and parts

Consumers’ needs and trends Exchange with other companies of other industries Seeds of new technologies emerging from universities and public research laboratories

Changes in the industrial and social structure

(%)

61) Henry Koda (2006)

Fig. 2-4-3 Changes in the role played by inspiration in innovation compared to 10 years agoApproximately 30% of SMEs answered that inspiration has come to play a larger role, slightly outnumbering the SMEs who answered that it has come to play a smaller role (approximately 20%)

31.331.3

48.248.2

20.520.5

The role of inspiration has increased

The role of inspiration has not changed

The role of inspiration has decreased


Note: Statistics based only on SMEs.


121

Section 4

As we have seen above, SME believe that in order for them to realize innovation through development of new products and service, and by other means, it is crucial for them to have skilled technical personnel that can conceive of and implement innovative technological ideas when considering ways to improve research and development, and production processes.

This type of personnel will be referred to as “innovative personnel,” and they will now be looked at in more detail.

(2) The innovative personnel working at SMEsWho are the innovative personnel working at SMEs?

Section 1 showed that having management that is keen to take on new challenges and are themselves inventive is a characteristic feature of SME innovation (Fig. 2-1-4). The findings of the Technical Human Resources Survey will be used to take a detailed look at the personnel that are working on producing innovative technology for SMEs operating in the manufacturing and telecommunications industries. Fig. 2-4-4 uses the same five fields as Fig. 2-4-2 that were mentioned earlier. The graph shows the areas of work that innovative personnel are in charge of in their respective companies. Although the graph shows

that at many of the SMEs, in most of the fields, the skilled technical personnel in charge of those particular fields are the ones responsible for coming up with new ideas, a high proportion of managers of SMEs are also responsible for coming up with new ideas, and notably in the case of “basic research and development, and anticipatory research and development of basic technologies,” one can see that managers are more likely than other staff members to come up with ideas.

Do SMEs have enough innovative personnel? Fig. 2-4-5 shows the extent to which companies, (divided according to the number of employees) are satisfied with the amount of innovative personnel they have. More than 70% of companies in every employee-size category state that they have insufficient or somewhat insufficient num-bers of innovative personnel. This indicates that although SMEs require innovative personnel, they are possibly not able to recruit and/or develop as many of such staff members as they would like.

Section 1 showed that research and development is crucial for SMEs to increase their profitability, and that enterprises with a certain level of high proportion of sales represented by new products are more likely to see

Fig. 2-4-4 Areas of work that innovative personnel are in charge of (by fields of technical innovation)Although at many SMEs in most of the fields, the skilled technical personnel in charge of those particular fields are the ones responsible for coming up with new ideas, a high proportion of managers are also responsible for innovation


Notes: 1. Statistics based only on SMEs that carried out “basic research and development, and anticipatory research and development of basic technologies,” “product and technology development,” “enhancement and improvement of preexisting products,” “enhancing quality and production management methods,” and “enhancing production lines and manufacturing methods” in the past five years.

2. Operators refers to those who are in charge of the following fields: research in “basic research and development, and anticipatory research and development of basic technologies”; product and technology development in “product and technology development”; “enhancement and improvement of preexisting products”; quality and manufacturing management in “enhancing quality and production management methods”; and manufacturing and processing in “enhancing production lines and manufacturing methods.” Other technical staff refers to all those in charge of fields other than the ones mentioned here.

33.1

39.4

30.7

48.7

43.942.4

34.3

23.723.720.5

23.6

12.210.8

27.9

17.419.2

10.811.6

10.5 11.9 12.7

0.73.1

5.6

1.2 0.20.7 0.8 1.5 0.3 0.50

10

20

30

40

50

60

Operators

Basic research and development, and anticipatory research and development of basic

technologies


Enhancement and improvement of

preexisting products

Enhancing quality and production

management methods

Enhancing production lines and

manufacturing methods

Managers Other technical staff Executives other than managers

Management strategy and corporate planning staff Sales representatives and clerks

(%)


122

an increase in revenue (Fig. 2-1-2 and 2-1-3). Lookingat the distribution of recurring profit margins of SMEs according to their innovative personnel sufficiency levels (Fig. 2-4-6), one can see that SMEs that have a sufficient number of innovative personnel tend to have higher profit

margins. This suggests the possibility that having a suf-ficient number of innovative personnel leads to develop-ment of new products and other things, and improves the business performance of SMEs.

Fig. 2-4-7 shows the kinds of systematic methods SMEs

Fig. 2-4-5 Level of satisfaction with number of innovative personnel (by employee size)More than 70% of companies in every staff-size category state that they have insufficient or somewhat insufficient numbers of innovative personnel


Notes: Statistics based only on SMEs that carried out “basic research and development, and anticipatory research and development of basic technologies”; “product and technology development”; “enhancement and improvement of preexisting products”; “enhancing quality and production management methods”; and “enhancing production lines and manufacturing methods” in the past five years.

21.321.3

28.628.6

26.526.5

25.225.2

15.615.6

18.718.7

22.322.3

48.048.0

55.155.1

50.850.8

48.848.8

51.551.5

46.746.7

37.337.3

30.730.7

16.316.3

22.822.8

26.026.0

33.033.0

34.634.6

40.440.4

0 10 20 30 40 50 60 70 80 90 100

Total

301 or more

101-300

51-100

21-50

6-20

Up to 5

Sufficient Somewhat insufficient InsufficientNumber of employees

(%)

Fig. 2-4-6 Level of satisfaction with number of innovative personnel and ratio of ordinary profit to salesSMEs that have a sufficient number of innovative personnel tend to have higher profit margins


Note: Statistics based only on SMEs that carried out “basic research and development, and anticipatory research and development of basic technologies”; “product and technology development”; “enhancement and improvement of preexisting products”; “enhancing quality and production management methods”; and “enhancing production lines and manufacturing methods” in the past five years.

0 10 20 30 40 50 60 70 80 90 100

Insufficient

Somewhat insufficient

Sufficient

Deficit 0% to less than 1%

1% to less than 3%

3% to less than 5%

5% to less than 7%

7% to less than 9%

9% or more

23.523.5

18.818.8

13.613.6

16.416.4

14.414.4

13.113.1

21.521.5

22.022.0

26.626.6

15.515.5

14.914.9

16.216.2

8.58.5

9.69.6

9.79.7

3.83.8

6.66.6

6.56.5

10.810.8

13.713.7

14.414.4

(%)


123

Section 4

in the manufacturing and telecommunications industries use in order to produce innovative technological ideas in different fields of technical innovation. Apart from in the “basic research and development, and anticipatory research and development of basic technologies” field, the “active recruitment and development of skilled tech-nical personnel” is the second most emphasized method after “interacting closely with clients and assessing their needs,” and even in the “basic research and development, and anticipatory research and development of basic tech-nologies” field the “active recruitment and development of skilled technical personnel” is the third most emphasized method.OnecanseefromthisfiguretheeffortSMEsareputting into the recruiting and developing skilled technical personnel in order to generate technological innovations.

2. Recruiting skilled technical personnel

The preceding sub-section looked at the ways in which SMEs are proactively recruiting and developing skilled technical personnel in order to produce important technological innovations that lead to an increase in sales and profits. Nowadays, with the aging of the skilled technical personnel employed in SMEs, recruiting young skilled technical personnel (including new graduates), is

an important factor in the long-term fostering of more highly skilled personnel through education and training in tandem with the transmission of skills and techniques. However, the number of science and engineering-related personnel in Japan is decreasing, and it is said that this, along with competition from large enterprises, means that SMEs are finding it difficult to recruit young skilled technical personnel.

This sub-section will look at the challenges that SMEs face in recruiting young skilled technical personnel, based on the statistical trends relating to science and engineering students, and the employment situation for young skilled technical personnel working at SMEs.

(1) Trends relating to science and engineering students in Japan

Trends relating to the number of science and engineer-ing students at high schools, technical colleges, and uni-versities, and their post-graduation paths, will be looked at using information taken from the School Basic Survey published by MEXT.

[1] High schools and technical collegesFig. 2-4-8 shows the trend in the total number of high

school students in Japan, and the trend in the number of

Fig. 2-4-7 Systematic methods used to produce innovative technological ideas (by fields of technical innovation)The most emphasized method is “interact closely with clients and assessing their needs,” followed by “active recruitment and development of skilled technical personnel”


Notes: 1. Statistics based only on SMEs that carried out “basic research and development, and anticipatory research and development of basic technologies”; “product and technology development”; “enhancement and improvement of preexisting products”; “enhancing quality and production management methods”; and “enhancing production lines and manufacturing methods” in the past five years.


56.2 57.8 57.353.0 51.852.2

43.9 41.941.9 42.538.638.640.740.7

33.333.335.535.5 33.833.8 32.132.1

61.9

37.631.7

29.229.2 26.626.6

49.6

31.3 28.5 27.628.228.8 28.0

30.925.6

23.7

17.717.7 18.518.520.8

25.025.2

40.7

23.623.4 22.7

34.534.5

26.3 27.3 24.021.7

39.8

18.613.4 12.6

25.1 24.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Interact closely with clients and assess their needs

Basic research and development, and anticipatory research and

development of basic technologies


Enhancement and improvement of preexisting

products

Enhancing quality and production management

methods

Enhancing production lines and manufacturing

methods

Active recruitment and development of skilled technical personnel

Conduct regular meetings to advance technological innovation Clearly show within and outside the company how highly it values technological innovation

Aggressively invest in technological innovation Gather product information from rival companies

Interact closely with other companies of the same industry Integrate targets for technological innovation into corporate plan

Interact closely with technological and technical departments, sales and marketing departments and marketing planning and strategy departments

Collaborate with universities and public research laboratories(%)


124

high school students studying technical subjects. The total number of high school students has been decreasing ever sincethepeakin1989of5.64millionandwas3.37mil-lion in 2008, representing a 40.2% drop from the peak in 1989. The number of students studying technical subjects decreased from the peak in 1989 of 490,000 to 270,000 in 2008 representing a drop of 43.7%. The percentageof high school students studying technical subjects also decreased, and was 8.1% of the total number of students in 2008. This is being referred to in Japan as Riko-banare or “the shift away from science and engineering.”

The number of technical college students is increas-ing, rising about 20% from 48,000 in 1985 to 59,000 in 2008,62) but that increase is much less significant than the decrease in the number of students studying technical subjects, and the total number of science and engineering students in high schools and technical colleges is decreas-ing significantly.

Looking at changes in the post-graduation pathstaken by high school students, although the percentage of students proceeding to university has increased from 30.5% in 1985 to 52.8% in 2008, the drop in the totalnumber of students connects directly to a drop in the number of newly employed high school graduates from a

peak of 550,000 newly employed high school graduates in 1985 to 210,000 in 2008, and the job placement rate has decreasedfrom39.8%to18.9%(Fig.2-4-9).Lookingatchanges in the post-graduation paths of students studying technical subjects, the job placement rate has decreased from 81.0% in 1985 to 62.6% in 2008, and the number of newly employed high school graduates has dropped from 110,000 in 1985 to 60,000.63)

The percentage of technical college students proceed-ing to higher education has also increased from 9.6% in 1985 to 42.5% in 2008, but the job placement rate has dropped from 89.0% in 1985 to 54.1% in 2008, and the number of newly employed technical school graduates has decreased from 7,100 in 1985 to 5,500 in 2008.64)

[2] Universities and graduate schoolsThetotalnumberofuniversitystudentsin1985was1.73

million and was seeing a rising trend. Since around 2000, the number has remained about the same. In 2008 there were 2.52 million students. Among these, the number of students studying in science and engineering departments has increased from 400,000 in 1985 to 490,000 in 2008. However, the proportion of the total number of university studentsthatthisrepresentshasdecreasedfrom23.3%in

Fig. 2-4-8 Trends in the number of high school students and the ratio of students studying technical subjectsThe total number of high school students in 2008 has decreased 40.2% compared to 1989; The number of high school students studying technical subjects has also fallen 43.7%

Source: MEXT, School Basic Survey.

Total number of high school students Number of students in technical subjects

0

100

200

300

400

500

600

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 085

(%)(10,000 persons)

(Year)

6

7

8

9

10

Ratio of students in technical subjects to total number of high school students (right axis)

2929 2828 2727

518518 526526 538538 553553 564564 562562 545545 522522 501501 486486 472472 455455 437437 426426 421421 417417 406406 393393 381381 372372 361361 349349 341341 337337

4848 4848 4848 4949 4949 4949 4747 4545 4444 4343 4141 4040 3939 3838 3737 3636 3636 3434 3333 3232 3030

9.29.2

8.68.68.88.8 8.78.7

8.48.4

8.18.1

62) See Appended note 2-4-1.63) SeeAppendednote2-4-2.64) SeeAppendednote2-4-3.


125

Section 4

Fig. 2-4-9 Changes in post-graduation paths of high school studentsThe percentage of students proceeding to university has increased from 30.5% in 1985 to 52.8% in 2008, while the job placement rate has decreased from 39.8% to 18.9%

Source: MEXT, School Basic Survey.Notes: 1. Number of students advancing to university and other institutions refers to the total number of students advancing to

university or junior college. 2. Other refers to the total number of students who advanced to special training colleges (special courses), special

training colleges (general courses), or public vocational training facilities, those engaged in temporary work, and others.

4242 4949 5151 5151 5252 5454 5757 5959 6161 6060 6060 6161 6161 6161 6060 6060 6060 5959 5757 5656 5757 5858 5959 5757

5555

6262 5959 5858 5959 6161 6161 5858 52524545

4040 3737

3434 32322727 2424 2424 2222 2121 2121 2121 2121 2121 2121

4141

5151 5555 5656 59596262 6262 6363

63636161 6060 5858

55555151

4949 4949 4949 5050 5050 4747 4343 3838 3535 3131

0

20

40

60

80

100

120

140

160

180

200

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 080

10

20

30

40

50

60

Percentage of students advancing to university and other institutions (right axis)

Job placement rate (right axis)

Number of students advancing to university and other institutions

Newly employed

Other

(10,000 persons) (%)

(Year)

30.5 30.6

37.6

45.147.3

52.8

39.8

34.4

24.9

18.2 17.2 18.9

Fig. 2-4-10 Trends in the number of university students and the percentage of science and engineering studentsThe proportion of the total number of university students accounted for by science and engineering students has decreased from 23.3% in 1985 to 19.6% in 2008


173173 176176 181181 186186 193193 199199 205205 213213 221221 228228 233233 237237 240240 243243 245245 247247 249249 250250 251251 251251 251251 250250 251251252252

4040 4141 4242 4343 4444 4646 4747 4949 5151 5353 5454 5555 5555 5656 5656 5656 5555 5454 5454 5353 5252 5151 5050 4949

0

50

100

150

200

250

300

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 0815

16

17

18

19

20

21

22

23

24

25

Percentage of total number of university students accounted for by students in science and engineering departments (right axis)

Total number of university students Number of university students in science and engineering departments

(Year)

(%)(10,000 persons)

23.323.323.023.0 23.123.1

22.522.5

20.720.7

19.619.6


126

1985 to 19.6% in 2008 (Fig. 2-4-10).Looking at changes in the post-graduation paths

taken by students of science and engineering universi-ties, although the number of newly employed science and engineering university graduates is following a level trend, the job placement rate has decreased from 80.8% in 1985 to 58.5% in 2008, and the percentage of students proceeding to graduate school has increased from 14.7% to34.5%(Fig.2-4-11).

The total number of newly employed graduates from science and engineering universities and graduate schools increased from 80,000 in 1985 to 100,000 in 2008,65) but this increase is much less significant than the decrease in the number of newly employed high school graduates amongst high school students studying technical subjects.

As was seen, in addition to the effects of Japan’s low birthrate, the shift by students away from science and engineering has brought about a significant decline in the number of skilled technical personnel being produced by educational institutions overall consisting of high schools, technical colleges, universities and graduate schools.

(2) The effect that the decrease in science and engineering student numbers is having on SME staff recruitment

As seen in section 1, the employment situation in Japan is rapidly worsening, and the active opening rate in February 2009 was significantly lower than 1. However the active opening rate in the technology and specialist industries was over 1, and there is still a shortage of engi-neers (Fig. 2-4-12).

So how do SMEs view this shortage of skilled tech-nicalpersonnel?Lookingat the resultsof the technicalpersonnel survey by employee size, it can be seen that the less employees a company has, the more keenly they are likely to feel the shortage (Fig. 2-4-13 [1]). Divid-ing skilled technical personnel into older and younger groups, more than 70% of SMEs responded that there was a “shortage,” or “something of a shortage” of younger skilled technical personnel in particular, and the less employees a company has the more keenly they are likely tofeel theshortage(Fig.2-4-13[2]).Fig.2-4-14showsnew graduate recruitment plans and recruitment success

Fig. 2-4-11 Changes in post-graduation paths of science and engineering studentsAlthough the number of newly employed is following a level trend, the job placement rate has decreased from 80.8% in 1985 to 58.5 in 2008, and the percentage of students proceeding to graduate school has increased from 14.7% to 34.5%

Source: MEXT, School Basic Survey.Note: Other refers to the total of students who advanced to special training colleges, schools overseas, etc.; those engaged in

temporary work; and others.

1212 1313 1414 1515 1616 1717 1919 2121 2424 2727 2929 3030 3030 3131 3333 3636 3636 3737 3838 3939 3939 4040 3939 3939

6868 6969 7171 7171 7070 74747979 7878 7575 7373 7575 7777 8080 7878 7272 6666 6868 6767 6161 6060 6262 6565 6767 6767

44 44 44 33 3333

33 33 4466 99

1010 1111 1111 1616 2020 1818 2020 2222 1919 1616 1212 1010 88

0

20

40

60

80

100

120

140

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 080

10

20

30

40

50

60

70

80

90

Percentage of students advancing to graduate school

Employment rate (right axis)

Number of students advancing to graduate schools

Newly employed

Other

(1,000 persons) (%)

(Year)

14.714.717.917.9

25.225.229.329.3

33.333.3 34.534.5

80.880.8 79.479.4

66.666.6

54.154.1 53.353.3

58.558.5

65) The number of newly employed graduates emerging from science and engineering graduate schools (master’s students, PhD students, and ProfessionalDegreestudents)increasedfrom9,569in1985to35,910in2008.


127

Section 4

over the last five years of SMEs that answered that there was a “shortage,” or “somewhat of a shortage” of skilled technical personnel in Fig. 2-4-13 [1]. Despite feelingthey had a shortage of younger skilled technical person-nel, the less employees a company has, the more likely they were to have had “no recruitment plan” or to have been “unable to recruit as planned,” and the more likely they were to find recruiting younger skilled technical personnel difficult.

How are those SMEs that are unable to recruit as many younger employees including new graduates as they would like making up for the shortage? Fig. 2-4-15 shows the countermeasures taken by companies that have a shortage of young skilled technical personnel that answered that they had been “unable to recruit ‘new graduates’ as planned.” According to the graph, a high percentage of companies are responding by employing mid-career experienced and inexperienced staff. Also, a certain percentage of companies answered that they had not taken any countermeasures, and more than 20% of companies with 5 or less employees answered that they had not taken any measure although they had been unable to employ new graduates.

So what are the characteristics of those SMEs that are able to employ new graduates? Fig. 2-4-16 shows the level of recruitment success of SMEs that had planned to employ new graduates divided into those companies that have succeeded in producing technological innovations in the last five years and those that have not. According to the graph, those companies that had produced technological

29.629.6 29.929.9 32.132.141.741.7 47.147.1 45.845.8

35.435.4

43.243.251.851.8

56.056.049.549.5

47.847.8 48.648.6

50.450.4

27.227.218.318.3

11.911.9 8.88.85.1 5.6

14.214.2

0

20

40

60

80

100

5 persons or less

6-20 persons

21-50 persons

51-100 persons

101-300 persons

301 persons or more

Overall

(%)

Sufficient Something of a shortage Shortage

Fig. 2-4-13 [1] The level of sufficiency of skilled technical personnel by employee sizeEnterprises with smaller workforces tend to feel the shortage of skilled technical personnel more keenly



Fig. 2-4-12 Trends in the active opening rate in each industryThe active opening rate in technology and specialists field was over 1, and there is still a shortage of technical experts

2.08

0.00

1.00

2.00

3.00

4.00

5.00

6.00

6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total of all industries Total of technology and specialist industries Technical experts in machinery and electric work

Technical experts in mining and manufacturing

Technical experts in construction, engineering and surveying

Technical experts in information processing

Technical experts in medicine

0.58

1.42

1.08

0.54

1.07

1.38

(Rate)

(Year/month)

Source: MHLW, Report on Employment Service.


128

Fig. 2-4-14 New graduate recruitment plans and recruitment success over the last five years of companies with a “shortage,” or “something of a shortage” of skilled technical personnel by employee sizeEnterprises with fewer employees were more likely to have had “no recruitment plan” or to have been “unable to recruit as planned”


Note: Statistics based only on SMEs that answered they had a “shortage” or “something of a shortage” of skilled technical personnel.

20.420.4

55.355.3

33.333.3

31.931.9

22.822.8

12.412.4

7.07.0

34.334.3

42.142.1

55.355.3

47.147.1

35.735.7

26.726.7

17.117.1

45.245.2

2.62.6

11.411.4

21.021.0

41.541.5

61.061.0

76.076.0

0 20 40 60 80 100

Overall

301 persons or more

101-300 persons

51-100 persons

21-50 persons

6-20 persons

5 persons or less

(Number of employees)

(%)

Able to recruit as planned Unable to recruit as planned No recruitment plan

Fig. 2-4-13 [2] The sufficiency of skilled technical personnel by age group and employee sizeMore than 70% of companies answered that there was a “shortage,” or “something of a shortage” of younger skilled technical personnel, and the less employees a company has the more keenly they are likely to feel the shortage


Notes: 1. Statistics based only on SMEs. 2. Younger group refers to permanent employees age 29 or under. 3. Older group refers to permanent employees age 55 or over.

19.319.3

50.050.0

21.121.1

60.660.6

22.422.4

60.160.1

31.731.7

71.571.5

37.737.7

72.072.0

32.032.0

72.672.6

25.925.9

63.463.430.330.339.039.0

26.226.2

48.048.0

29.829.8

46.846.8

24.124.1

47.947.9

23.823.8

49.349.3

17.817.8

42.942.9

26.226.250.450.4

28.928.9

21.121.1

39.939.9

13.213.2

29.529.5

10.110.121.621.6

4.4

14.414.4

4.2

18.718.79.69.6

31.231.2

10.310.3

0

20

40

60

80

100

Younger group

Older group

Younger group

Older group

Younger group

Older group

Younger group

Older group

Younger group

Older group

Younger group

Older group

Younger group

Older group

5 persons or less 6-20 persons 21-50 persons 51-100 persons 101-300 persons 301 persons or more Overall

(%)Sufficient Something of a shortage Shortage


129

Section 4

Fig. 2-4-15 Countermeasures of enterprises with a shortage of young skilled technical personnel that had been “unable to recruit ‘new graduates’ as planned” by employee sizeA high percentage of companies are responding to the shortage of skilled personnel mainly by employing mid-career experienced and inexperienced staff members


Notes: 1. Statistics based only on SMEs that answered that they are “unable to recruit ‘new graduates’ as planned” among enterprises that had a “shortage” or “something of a shortage” of skilled technical personnel.


31.6

40.4 39.342.3

49.5

61.5

42.3

23.723.7

37.033.6

39.836.036.0

23.123.1

35.4

13.213.2

7.57.5

18.9

26.0

35.130.8

20.6

5.3 6.26.29.09.0 9.89.8

18.015.415.4

10.110.110.513.0

8.2

12.29.99.9

15.415.411.0

5.3 6.26.29.09.0 7.3 9.0

23.1

8.08.0

23.7

11.614.8

8.16.3

15.411.4

0

10

20

30

40

50

60

70

5 persons or less

(%)

(Number of employees)

Employing mid-career experienced staff members

Employing mid-career inexperienced staff members

Utilizing outside entities such as contractors and dispatch workers

Recruiting non-permanent staff members to become permanent staff members

Outsourcing some processes Substituting by introducing equipment

No countermeasures taken

6-20 persons 21-50 persons 51-100 persons 101-300 persons 301 persons or more Overall

Fig. 2-4-16 Level of recruitment success of SMEs that had planned to employ new graduates by employee size, and whether they had produced technological innovationsAs a whole, SMEs that had produced technological innovations in the last five years were more successful in recruiting new graduates than those that had not, and this difference is particularly significant amongst companies with five or less employees

33.333.318.818.8

29.329.3 31.431.4 29.629.6 31.031.039.439.4 39.039.0 39.339.3 41.141.1 38.538.5 40.740.7 37.737.7 31.831.8 37.037.0

54.854.8 60.060.0 55.655.638.038.0 33.933.9 37.237.2

66.766.781.381.3

70.770.7 68.668.6 70.470.4 69.069.060.660.6 61.061.0 60.760.7 58.958.9 61.561.5 59.359.3 62.362.3 68.268.2 63.063.0

45.245.2 40.040.0 44.444.462.062.0 66.166.1 62.862.8

0

10

20

30

40

50

60

70

80

90

100

5 persons or less

SMEs

that

had

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

SMEs

that

had

not

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

Over

all

SMEs

that

had

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

SMEs

that

had

not

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

Over

all

SMEs

that

had

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

SMEs

that

had

not

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

Over

all

SMEs

that

had

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

SMEs

that

had

not

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

Over

all

SMEs

that

had

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

SMEs

that

had

not

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

Over

all

SMEs

that

had

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

SMEs

that

had

not

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

Over

all

SMEs

that

had

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

SMEs

that

had

not

pro

duce

d te

chno

logi

cal i

nnov

atio

ns

Over

all

Able to recruit as planned Unable to recruit as planned(%)

6-20 persons 21-50 persons 51-100 persons 101-300 persons 301 persons or more Overall


Note: Statistics based only on SMEs that answered they had a “shortage” or “something of a shortage” of skilled technical personnel.


130

innovations in the last five years were more successful in recruiting new graduates than those that had not, and this difference is particularly significant amongst companies with five or fewer employees. Presumably, this shows that SMEs that are attempting to move into new fields of busi-ness, or creating or improving on new technologies can attract and successfully recruit young skilled technical personnel even if the company has few employees.

Are there any differences in the specific recruiting methods used by SMEs that are successful in employing new graduates and those that are not? Fig. 2-4-17 shows the kinds of recruitment-related activities carried out by SMEs that had planned to recruit new employees. A large percentage of the SMEs had sent job offers to the national job agency Hello Work, or had created a website, but when comparing those companies that managed to recruit new graduates as planned and those that did not, a large proportion of the companies that managed to recruit new graduates answered that they had “interacted with educational institutions” or had “organized internships.”

Actively interacting with educational institutions by, for example, welcoming science and engineering students as interns or by sending skilled technical personnel at SMEs to educational institutions to teach as lecturers, may not necessarily lead to SMEs being able to recruit new graduates, but proactively putting out information about themselves, and helping students to understand how technologically advanced they are as well as the appeal of the work they are offering would presumably help compa-nies to recruit young skilled technical personnel.

A more detailed look at trends and issues relating to

coordination between educational institutions and SMEs, including internships among other measures will be offeredinChapter3,Section2ofthisreport.

3. Developing innovative human resources

The preceding sub-section, after looking at the par-ticular shortage of younger skilled technical personnel that SMEs are facing, pointed out how proactively devel-oping new products and technological innovations, and thereby attracting the interest of science and engineering students, plus disseminating information to them by, for example, carrying out internships may be an effective way to recruit more skilled technical personnel. The next sub-section will look at the challenges facing SMEs when training skilled technical personnel.

(1) Approaches to training innovative personnelFirst will be a look at the methods SMEs are currently

using in training innovative technical personnel. Fig. 2-4-18 shows that, regardless of whether they are expe-riencing a shortage of innovative personnel or not, a very large percentage of SMEs say that they train innovative personnel through the transmission of technological and technical skills from supervisors and superiors. Also, one can see that SMEs that say they have enough innovative staff, or that they are only facing a slight shortage, are more likely to proactively transmit technological and technical knowledge than SMEs that say they have a shortage. This shows the importance of the idea that to

Fig. 2-4-17 Recruitment-related activities carried out by companies that had planned to recruit new employeesA large proportion of enterprises that managed to recruit new graduates answered that they had “interacted with educational institutions” or had “organized internships”


Notes: 1. Statistics based only on SMEs. 2. Due to multiple responses, the total exceeds 100.

66.8

73.470.2

38.9 38.8 38.9

24.9 25.8 25.4

32.5

22.527.4

16.7

23.520.1

16.5 16.1 16.316.220.6 18.517.9

10.914.3

9.4 9.5 9.4

0

10

20

30

40

50

60

70

80

OverallUnable to recruit as plannedAble to recruit as planned

Sent job offers to Hello Work Created a website Used employment portal sites

Interacted with educational institutions (excluding internships)

Sent recruiting ads to job information magazines and newspapers

Created pamphlets

Recruitment through relatives and acquaintances

Organized internships Cooperated with the Chamber of Commerce and Industry and assistance organizations

(%)


131

Section 4

Fig. 2-4-18 Approaches to develop innovative personnel by level of sufficiency in innovative personnelRegardless of whether they are experiencing a shortage of innovative personnel or not, a very large percentage of companies say that they train innovative personnel through the transmission of technological and technical skills from supervisors and superiors

58.060.7

47.7

56.2

38.3 38.235.1 37.3

28.6 30.4

24.724.728.328.3

23.923.927.8 26.2 26.525.5 26.5 25.0 25.9

17.114.3 12.5 14.4

12.1 11.46.2

10.011.5 10.4 8.4 10.0

0

10

20

30

40

50

60

70

Sufficient Something of a shortage Shortage Overall

(%)

Transmission of technological and technical skills from supervisors and superiors Encouraging participation in seminars and lectures

Encouraging participation in training programs organized by outside institutions

Offering managerial positions, positions of responsibility and decision-making authority

Using rewards to reflect the results of technological innovation Enabling employees to obtain a wide range of knowledge and skills through in-house job rotation

Encouraging participation in in-house training programs Transferring personnel to research, and to education institutions to study or do research


Notes: 1. Statistics based only on SMEs that answered they had carried out “basic research and development, and anticipatory research and development of basic technologies,” “product and technology development,” “enhancement and improvement of preexisting products,” “enhancing quality and production management methods,” and “enhancing production lines and manufacturing methods” in the past five years.


An association offering internships to students and working to support its member companies in the recruitment of skilled technical personnel

2-4-1

The Gifu Metal Engineering Community Cooperative Association in Kakamigahara City, Gifu Prefecture was established in 1961, the year in which the SME industry complex program was implemented in Japan, as the first authorized SME factory complexes. The association provides its member companies with communal electricity reception services, financial services, training and information services, insurance, and other benefits. The 54 companies belonging to the association carry out a wide variety of metal-working opera-tions, and practically any type of machinery and metal-related processing can be carried out within the metal-working factory complex.

Upon finding out that the thing that member companies desired most was to acquire more skilled technical personnel, the association was approved in 2005 by the Employment and Human Resources Development Organization of Japan to carry out SME personnel recruitment promotion programs and began personnel recruitment operations. In 2007, the association began a program offering presentations by and information about member companies and internships targeting second-year students studying mechanical engineering in a local industrial high school. The internships lasted

roughly three days per company, and covered everything from safety training to simple practi-cal work, and staff also held discussions with the students during lunch breaks.

There were 17 student participants in 2007 and 23 in 2008, and compared to before the program started the number of new recruits has increased significantly. The program has been received favor-ably by both the school and member companies. The attitude of students towards working for member companies and the attitude of the mem-ber companies towards recruiting the students both improved after the students actually visited the work areas. Providing company information and presentations was left up to the member companies, and those companies that were able to make such presentations well were apparently well received by the students.

The association believes that students certainly aren’t prejudiced against working at SMEs, and if SMEs are willing and able to properly explain the kind of work they carry out, they will be able to recruit new staff. The association plans to continue working in this way to help bring its member com-panies and the students together thereby helping the companies to recruit new personnel.

Case


132

An SME that has created new unique products through the application of basic technologies2-4-2

Zero Seiko Co. Ltd., based in Amagazaki City, Hyogo Prefecture, with a workforce of 66 and capital of ¥10 million, is an SME that specializes in the metal-cutting processing of precision parts for use in the aerospace industry and in pneumatic and hydraulic machinery. The company also utilizes the technologies used in that work to plan, design and manufacture stationery products.

A ballpoint pen and stand set that the company has produced called Tameiki 3 byou, or “three second sigh,” has been referred to as a “healing” stationery product and has been receiving a great deal of attention. The name of the product comes from the fact that when the pen is placed in the accompanying stand, the pen slides down as though it is being sucked in, and the movement is sugges-tive of a person breathing a sigh of relief. The pen and the hole in the pen stand are precisely worked to create a 0.02 millimeter-wide gap, and when the pen is placed in the stand air is slowly pushed out from the gap and the pen gradually slides down as it pushes the air below out. The product is a result of the application of the hydraulic metal-cutting processing technology the company uses and the company is proud to produce its precision hydraulic machinery parts.

In addition to the Tameiki 3 byou series, the company is working on a variety of other stationery products and other related goods. This ability to

develop new products stems from the company’s efforts to transmit knowledge to younger staff members and the fact that they value the ideas that staff members come up with when they are carrying out metal-cutting processing work on precision components. When engineers discover a certain movement while at work that they think might lead to the development of a new product, they draw up a design plan and prepare a product prototype. The company has also created an atmo-sphere which encourages employees to propose ideas, and discussions about ideas are held during lunch breaks. Also, in order to gain new ideas, they coordinate with local universities to absorb ideas from students, and hold discussions with out-of-store-sales staff from department stores, and exhibit at and visit various kinds of trade fairs in Japan and overseas.

The president of the company, Mr. Hitoshi Okamoto says that “getting staff to visit other companies and universities as often as possible provides them with chances to come up with new ideas and absorb many things, and also provides tips relating to management innovations and product development.” He plans to continue with his current management philosophy of creating an organization that is capable of continually produc-ing technological innovations.

Case

An SME that carries out research and development from the perspective of the users of their services2-4-3

Shouwa Dengiken, based in Yokohama City, Kanagawa Prefecture, with a workforce of 65 and capital of ¥80 million, is an SME that man-ages pay-by-the-hour car parks and sells car park control equipment. The president of the company, Mr. Sadao Nagai, comes up with ideas by thinking from the perspective of the users of his company’s services, and this is helping the company to grow.

Mr. Nagai felt that users were feeling unsatis-fied because of the stress resulting from having to expend time and effort searching for an empty parking space. So in 2001, the company developed its Neko no Me System or Cat’s Eye System (oper-ated by affiliated company Riprice Co. Ltd.) which allows users to check waiting times and how full each car park is, and can be accessed by users from mobile phones and computers. The system also allowed the company to introduce a variable fee system that responds to how busy each car park is. As a result, customer satisfaction has improved, and the car park utilization rate has increased. Mr. Nagai thought that the improvement in customer

satisfaction due to the ease of finding vacancies and the reduction in service provision waiting times that this system provides could also be help-ful in fields other than car park management, and so he decided to start selling the system to other companies and organizations. The system is now widely used in places like hospitals, restaurants, and public offices. From April 2009, the company plans to start providing information about wait-ing times and congestion statuses at bicycle parks and financial institutions. Mr. Nagai feels that the service industry is not currently doing enough to improve user satisfaction and needs to help prevent consumers from making unfavorable choices and that to improve this situation, it will be necessary to set up an information infrastructure to provide information to both service providers and consum-ers. He intends to continue developing content for information distribution that will evolve with societal changes and improve the convenience of services for consumers.

Case


133

Section 4

acquire new knowledge one needs is a foundation of older knowledge. Later on will be a look at the relationshipbetween innovative personnel and the transmission of technological and technical skills. The next most com-mon approach after the transmission of technological and technical skills is sending out staff to attend seminars and lectures. Exposing staff to outside knowledge and information helps them to see their own work and their SMEs’ products in a new light, and also helps them to gain essential information. This will sow in them the seeds of new ideas, improve their technical capabilities, and all of this presumably will make a contribution to the training of innovative personnel.

Sub-section 1 showed that a large proportion of SMEs rely on their managers for coming up with ideas. Man-agement, which includes representatives of SMEs, has many opportunities to gain information and knowledge from attending seminars and lectures carried out by out-side entities, and through meeting with the managers of other companies and people from financial institutions. Presumably this is one reason why managers tend to be the main innovative staff members in SMEs.

In order to train innovative personnel, one could say that it is also essential to increase the exposure to outside knowledge and information for staff under a company representative through cooperation and exchange with people from outside entities.

(2) Innovative personnel and the transmission of technological and technical skills

(1) looked at the relationship between innovative per-sonnel and the transmission of technological and technical

skills, and a more detailed look at this relationship will now be taken. Fig. 2-4-19 shows the relationship between how successfully companies are managing to transmit technological and technical skills, and having a shortage ofinnovativestaff.Onecanseethatthemoresuccessfula company believes it is in transmitting technological and technical skills, the more likely it is to have sufficient innovative personnel. In addition, a larger percentage of SMEs that feel they have had success in transmitting tech-nological and technical skills have made technological innovations over the last five years than those companies that do not feel they have successfully transmitted such skills (Fig. 2-4-20). Even if SMEs gain an understanding of their customers’ needs and come up with good ideas through interacting with them and through that interac-tion, if they lack sufficient technological capability to materialize those ideas, the ideas will be of little practical use to them. Therefore in order for SMEs to train new innovative personnel and continuously produce techno-logical innovations, it is necessary for them to transmit their own sophisticated technological and technical skills to the next generation of staff members in their compa-nies.

So, what challenges do SMEs face when transmitting their technological and technical skills? Fig. 2-4-21 [1] shows the challenges facing SMEs when transmitting technological and technical skills. The most commonly mentioned challenge was not having enough time avail-able for educating staffs. Fig. 2-4-21 [2] shows the chal-lenges relating to transmitting technological and technical skills faced by SMEs divided according to whether or not they feel they have been successful in transmitting

Fig. 2-4-19 The level of sufficiency of innovative personnel and the transmission of technological and technical skillsEnterprises that believe they are successful in transmitting technological and technical skills tend to be more likely to have sufficient innovative personnel


Notes: 1. Statistics based only on SMEs that answered they had carried out “basic research and development, and anticipatory research and development of basic technologies,” “product and technology development,” “enhancement and improvement of preexisting products,” “enhancing quality and production management methods,” and “enhancing production lines and manufacturing methods” in the past five years.


18.018.0

30.730.7

48.848.8

30.130.1

34.134.1

34.434.4

51.951.9

35.235.2

16.916.9

0 10 20 30 40 50 60 70 80 90 100

Unsuccessful in transmitting skills

Cannot say either way

Successful in transmitting skills

Sufficient

(%)

Something of a shortage Shortage


134

technological and technical skills. Those SMEs that feel that they haven’t been successful in transmitting techno-logical and technical skills are more likely to mention a lack of both instructors and personnel who are ready to receive instructions, and a lack of ability and enthusiasm on the part of staff members who receive instruction, compared to those that feel they have been successful in transmitting technological and technical skills. One

can see that due to increasingly demanding expectations relating to product quality and precision, and the rapid shortening of technological innovation and product development cycles, SMEs in need of technological and technical skills not only lack time to educate young skilled technical personnel and transmit technological and technical skills to them, they also lack personnel to do so.

Fig. 2-4-20 Situation on the transmission of technological and technical skills by whether technological innovations have been produced or notA larger percentage of SMEs that have produced technological innovations feel they have successfully transmitted such skills



26.126.1

17.717.7

28.728.7

50.750.7

51.451.4

50.550.5

23.223.2

31.031.0

20.820.8

0 10 20 30 40 50 60 70 80 90 100

Overall

SMEs that had not produced technological innovations

SMEs that had produced technological innovations

Successful in transmitting skills

(%)

Cannot say either way Unsuccessful in transmitting skills

31.5

18.8

15.614.3

11.6 11.2

8.7

24.4

0

5

10

15

20

25

30

35

Lack

of t

ime

to

edu

cate

staf

f

Lack

of p

erso

nnel

to in

stru

ct st

aff

Lack

of a

bilit

y

and

ent

husia

sm

on

the

part

of st

aff

mem

bers

who

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ive in

stru

ction

Lack

of p

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that

staf

f wish

to e

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te

Pers

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l flow

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Educ

ation

cos

ts

are

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Lack

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sm o

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the

part

of st

aff

mem

bers

who

pro

vide

inst

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No c

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(%)

Fig. 2-4-21 [1] Challenges of transmitting technological and technical skillsThe most common challenge of transmitting technological and technical skills that SMEs mentioned was not having enough time available for educating their staff




135

Section 4

What SMEs are specifically doing in order to transmit technological and technical skills will now be discussed. According to Fig. 2-4-22, in general, many SMEs carry outone-on-oneOJT 66) and “postpone retirement and con-tinue employment of experienced technicians.” However, compared to SMEs that feel they are not successfully transmitting technological and technical skills, a higher percentage of those SMEs that feel they are successfully transmitting technological and technical skills are intro-ducing information technology and manuals for techno-logical and technical skills, in-house training and other formsofOff-JT 67) instruction to transmit such informa-tion, and one can infer from this that while they primarily useone-on-oneOJTtheyalsoutilizetheseothertrainingmethods to get around the problem of limited time. SMEs that feel they are successfully transmitting technological and technical skills actively motivate both staff members providing technological and technical skill instruction and staffmemberswho receive this training.Fig.2-4-23 [1]andFig.2-4-23[2]showthemethodsemployedbySMEs(divided according to their training success) to motivate both older and experienced technicians and younger personnel to get involved in the transmission of techno-logical and technical skills. Looking at the graphs onecan see that SMEs that are successfully transmitting skills actively motivate experienced technical and skilled per-sonnel by offering them “managerial positions, positions

of responsibility, and decision-making authority.” Many SMEs also motivate younger technical and skilled person-nel through “dialogue with the management regarding the significance of transmitting technological and technical skills,” “praising their efforts in learning technological and technical skills and using rewards as incentive” and others. Also, as seen in Fig. 2-4-21, the biggest technologi-cal and technical skill-related challenge facing both those responsible for providing instruction and those receiving instruction is the lack of time available to carry out train-ing, and a large percentage of SMEs arrange work time schedules and work content in order to solve this.

Onecan infer fromtheabove that ifSMEs treat thetransmission of technological and technical skills as an important management issue and if they motivate both those responsible for carrying out and those receiving the training, the transmission of these skills will be carried out properly, and this by extension will lead to the development of innovative personnel and successful technological innovation.

It could be said that it is necessary for SMEs to create a corporate culture which enables continuous technological innovation by proactively moving to train innovative per-sonnel through interaction and coordination with outside entities, as well as motivating personnel in appropriate ways to encourage the transmission of technological and technical skills.

66) On-the-Job-Training67) Off-the-Job-Training

Fig. 2-4-21 [2] Challenges of transmitting technological and technical skills by the level of success of the transmission of technological and technical skillsSMEs that answered they were “unsuccessful in transmitting skills” are more likely to mention a lack of both instructors and staff members to provide instruction to, and a lack of ability and enthusiasm on the part of staff members who receive instruction when compared to those that answered that they were “successful in transmitting skills”



31.1 32.330.2

9.6

16.0

31.1

7.7

14.0

24.3

5.4

12.7

23.8

6.8

11.2 11.7 11.7

15.9

9.4

4.0

7.9

13.7

43.8

26.6

6.1

0

5

10

15

20

25

30

35

40

45

50

Successful in transmitting skills Cannot say either way Unsuccessful in transmitting skills

Lack of time to educate staff Lack of personnel that staff wish to educate

Lack of ability and enthusiasm on the part of staff members who receive instruction

Lack of personnel that staff wish to educate Personnel flow out even if education is provided

Education costs are too expensive

Lack of ability and enthusiasm on the part of staff members who provide instruction

No challenges(%)


136

Fig. 2-4-22 Specific measures to transmit technological and technical skillsA higher percentage of enterprises that feel they are successful in transmitting technological and technical skills are providing these instructions by using information technology and manuals, in-house training and other Off-JT instruction than enterprises that feel otherwise



48.3

41.6

36.3

42.140.437.5

40.4 38.9

30.6

24.320.7

25.122.3

17.617.6

12.112.1

17.614.614.6

15.3 14.7 14.914.916.5

14.2 13.4 14.6

8.8 7.3 8.1 7.94.4

6.68.6

6.55.2 3.7 2.8 3.92.6

9.8 10.68.1

0

10

20

30

40

50

60

Successful in transmitting skills Cannot say either way Unsuccessful in transmitting skills Overall

(%)

One-on-one OJT

Use information technology and manuals for technological and technical skillsRecruit personnel from other operation fields in-house to readjust personnel distributionMechanize, simplify and outsource technological and technical skills that are not a core part of the companyProvide Off-JT instruction in in-house training by skilled workers from other companies

Postpone retirement and continue employment of skilled workers

Provide Off-JT instruction in in-house training by in-house skilled workers Utilize Off-JT instruction such as external training courses

Recruit mid-career experienced skilled workers from other companies rather than training them in-houseNo measures taken

Fig. 2-4-23 [1] Methods to motivate experienced technical and skilled personnel to get involved in the transmission of technological and technical skillsEnterprises that are successful in transmitting skills actively motivate experienced skilled technical personnel by offering them “managerial positions, positions of responsibility, and decision-making authority”



Offering managerial positions, positions of responsibility, and decision-making authority

Dialogue with the management regarding the significance of transmitting technological and technical skills

Praising their efforts in learning technological and technical skills and using rewards as incentive

Working to incorporate transmission of technological and technical skills into the work and within working hours

Offering in-house qualifications in accordance with skill level No particular measures are taken(%)

41.6

33.1

29.9

34.631.5

22.123.9 24.9

26.7

20.2 20.121.9

26.7

18.116.7

20.018.0

10.4 11.4 12.6

17.5

32.0

35.5

29.1

0

5

10

15

20

25

30

35

40

45



137

Section 4

Fig. 2-4-23 [2] Methods to motivate younger technical and skilled personnel to get involved in the transmission of technological and technical skillsMany enterprises that believe they were successfully transmitting technological and technical skills motivate younger skilled technical personnel through “dialogue with the management regarding the significance of transmitting technological and technical skills,” and “praising their efforts in learning technological and technical skills and using rewards as incentive”

37.1

28.7 28.530.831.1

25.1

21.8

25.9

30.6

24.7

20.3

25.2

34.5

20.6 20.7

24.2

18.9

13.7 14.4 15.215.7

26.6

30.7

24.7

0

5

10

15

20

25

30

35

40


Dialogue with the management regarding the significance of transmitting technological and technical skills

Praising their efforts in learning technological and technical skills and using rewards as incentive

Offering managerial positions, positions of responsibility, and decision-making authority

Working to incorporate transmission of technological and technical skills into the work and within working hours

Offering in-house qualifications in accordance with skill level No particular measures are taken

(%)



An SME taking a proactive approach to develop personnel by including the advancement of technological and technical skills in its business strategy

2-4-4

Yamaoka Seisakusho Co. Ltd., based in Joyo City, Kyoto Prefecture, with a workforce of 160 and capi-tal of ¥62.4 million, is a manufacturer that special-izes in precision metal mold processing, precision component processing, producing equipment used in electronic component manufacturing, and press working. The company considers improving the technological and technical skills of staff to be a core element of their management philosophy, and they refer to this thinking as MOS, or Management of Skill. Specifically, they aim to: (1) assess clearly the skill levels of staff members, (2) oversee the upskilling of each staff member on an individual basis and encourage them to quickly achieve the target levels set for them, (3) ensure the ability-based grade system matches individual employee’s skills, (4) evaluate staff skill levels through their pay, and (5) proactively expand the field of work which only their own staff is able to carry out.

The company also closely oversees the skill levels of each of its employees with individual skill man-agement charts that are displayed in-house and show each employee’s current skill level and their

target skill levels, in order to keep clear tracks of the capacity development of individual employees. At the end of each evaluation period, supervisors and the employees themselves evaluate their technological and technical skill level, and their pay is determined according to this performance evaluation. The company also has a system it calls Oshitsuke OJT, or, Imposed On-the-Job-Training. Since experienced skilled technical personnel are reluctant to teach their skills to others, with Oshit-suke OJT, those responsible for providing training are assigned training quotas and staff members who receive training write down who trained them and the manner in which they were trained.

Though these training methods were developed over a long period of time the company is not com-placent about how things are, and they have set up an education implementation committee that is tasked with reexamining training methods when necessary, looking at what ought to be taught, and checking the specific content that is covered in training on a monthly basis.

Case

Section 5 The financing of SMEs carrying out research and development

138


Section 1 looked at how a shortage of funds is a major problem for SMEs when carrying out research and development (Fig.2-1-31).FromwheredoSMEsraisefundswhencarryingoutresearchanddevelopment,andwhatarethespecificchal-lenges that they face? This section will focus on the financing of SMEs that are carrying out research and development. It will also attempt to provide an accurate picture of the conditions surrounding this financing while also looking at the issues surrounding the creation of an environment in which SMEs can raise funds efficiently, and the challenges to be addressed by financial institutions 68) and venture capital firms,69) who supply those funds, and by SMEs, who procure those funds.

An SME taking a proactive approach to train skilled technicians by utilizing government, industry and academic collaboration

2-4-5

Ikeda Precision Industries Co. Ltd., based in Tomata-gun, Okayama Prefecture, with a work-force of 43 and capital of ¥20 million, is a com-pany that specializes in stainless steel component processing, and its products are used in machines such as sanitary bottle-filling equipment for medi-cine, soft drinks and other products. In particular, sanitary bottle-filling equipment components account for more than 50% of the company’s sales. Utilizing their own unique know-how, the company manufactures and processes almost all of the components such as nozzles and valves that are required to manufacture the equipment, and the high quality and reliability of their work ensures that they receive a stable flow of orders.

In order to revitalize their region’s industry, the company has joined with other companies working in the same field from their region to work together with the aim of creating a stain-less steel processing base in Tsuyama City, and in 2007 the company joined the “Tsuyama Stainless Clusters,” a group centered around the Tsuyama New Industrial Development Organization, which includes the Tsuyama National College of Technol-ogy, the Industrial Technology Center of Okayama Prefecture, and 23 other companies in the region working in the same field.

Members of the “Tsuyama Stainless Clusters” complement each others’ technologies, share facilities, jointly accept orders, and have prepared a technical personnel training curriculum. Through

collaboration between government, industry and academia, they are making a commitment to train-ing skilled technical personnel. The curriculum aims to have students compositely master the three types of skills necessary to work with stainless steel: machine working, sheet metal working, and weld-ing. The curriculum has two different levels: the standard level which covers basic technological skills and the specialist level which covers the practical skills needed in actual day-to-day work. Standard level students are primarily taught by professors at the Tsuyama National College of Technology, and specialist level students are primarily taught by com-pany engineers. The courses make use of the col-lege’s facilities, and the personnel and equipment of participating companies. In addition to upskilling young engineers, brought about by activities that encourage friendly rivalry between engineers working at different companies, these courses also provide opportunities for staff from different com-panies to interact and share information.

The president of the company, Mr. Akira Ikeda says, “I believe that in the manufacturing industry, the accumulation of technology that is unique to a company is something that leads to technological innovation and the development of new products. When engineers attempt to master advanced technologies, in-house rivalry develops, and this helps a company to acquire skilled engineers.” He believes that training skilled technical personnel will become increasingly important in the future.

Case

68) Here financial institutions refers to commercial banks, trust banks, credit associations, credit cooperatives, the Japan Finance Corporation (the sections corresponding to the formerNationalLifeFinanceCorporation and the JapanFinanceCorporation forSmall andMediumEnterprise),theOkinawaDevelopmentFinanceCorporation,andtheShokoChukinBank.

69) HereventurecapitalfirmsreferstoventurecapitalinvestorsplusTokyoSmallandMediumBusinessInvestment&ConsultationCo.Ltd.,OsakaSmallandMediumBusinessInvestment&ConsultationCo.Ltd.,andNagoyaSmallandMediumBusinessInvestment&ConsultationCo.Ltd.


139

Section 5

1. Conditions surrounding the financing of SMEs carrying out research and development

(1) Conditions surrounding financing at each stage of development

Firstly, based on the findings of Tokyo Shoko Research Ltd.’sSurvey of Conditions Relating to Corporate Fund Procurement 70) (hereinafter referred to as the Financ-ing Conditions Survey), the conditions relating to the fund procurement activities of SMEs that are carrying out research and development 71) will be analyzed by comparing them with the conditions relating to the fund procurement activities of SMEs that are not carrying out research and development. SMEs will also be analyzed by dividing them into three groups according to the developmental phase they are currently in from the stage of the company first being inaugurated, to canvassing for sales, then taking root and increasing sales.

[1] Early growth phaseFollowing inauguration, the company has commenced manufacturing and sales activities, but has yet to attain stability.[2] Growth and expansion phaseThe company is now taking root and sales are increasing.[3] Stable phaseThe company is stable and now has a continuous cash flow

Now will be a look at the management challenges fac-ing SMEs in these three different developmental phases. Fig. 2-5-1 [1] shows the kinds of management challenges perceived by SMEs that are carrying out research and development by the particular developmental phase they feel they are currently in (the early growth phase, the growth and expansion phase, or the stable phase, as defined above). According to the graph, while the biggest management challenge facing early growth phase SMEs that carry out research and development was “securing a source of funds” at 59.2%, the biggest management challenge facing companies in the growth and expansion phase and the stable phase was “expanding domestic sales networks and strengthening selling power,” and relatively few companies felt that “securing a source of funds” was a management challenge compared to other options.

Also, in order to provide a comparison with the answers in Fig. 2-5-1 [1], Fig. 2-5-1 [2] shows the manage-ment challenges perceived by SMEs that do not carry out research and development in each of the three develop-mental phases. More SMEs that do not carry out research and development in each of the developmental phases felt that “expanding domestic sales networks and strengthen-ing selling power” and “acquiring management-level staff” were management challenges, and relatively few felt that “securing a source of funds” was a challenge. So one can see that “securing a source of funds” is a major management challenge for early growth phase SMEs that

70) The survey targeted 15,000 companies belonging to large classification K of the Japan Standard Industrial Classification excluding financial firms (49.8% response rate)

71) Here, SMEs that are carrying out research and development refers to companies that have in the past or are currently investing a proportionate amountofmoneyintoapplyinganewtechnologyorideaintoanexistingtechnology,productorprocessinordertoaddvaluetoit.Ofthecompanies who responded to the Financing Conditions Survey,2,489companiescarryoutresearchanddevelopmentand3,133companiesdonot. For information about the attributes of the company see Appended Note 2-5-1.

Fig. 2-5-1 [1] Management challenges by developmental phases (SMEs that conduct R&D)Of early growth phase SMEs, 59.2% cite “securing a source of funds,” making this the biggest management challenge

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Notes: 1. Statistics based only on SMEs. 2. Due to multiple responses, the total exceeds 100.

52.4 51.047.0 48.3

21.421.4

37.7

43.240.538.8 38.6

30.732.5

29.1 30.532.2

30.5

19.4

25.2

30.829.2

11.711.7

18.518.515.3

18.5

59.2

26.7

8.7

14.912.6

14.811.1

14.0

0

10

20

30

40

50

60

70

Early growth phase Growth and expansion phase Stable phase Total of phases

Expanding domestic sales networks and strengthening selling power

Streamlining the production department and costs

Acquiring excellent research and development personnel

Acquiring management-level staff Development of new areas Improvement of internal control and compliance structure

Securing a source of funds Strengthening overseas strategy

(%)


140

carry out research and development.The next area of focus is whether SMEs in each of the

different developmental phases are actually able to secure a sufficient amount of funds. Fig. 2-5-2 compares SMEs that carry out research and development and those that do not and shows that early growth phase SMEs that carry out research and development in particular are less likely to be able to secure sufficient funds.

What measures do SMEs that carry out research and development employ when they are unable to secure as much funding as they would like? According to Fig. 2-5-3 approximately 30% of early growth phase SMEsthat carry out research and development answered that they had “cut back on business investment,” and approxi-mately 10% answered that they had “abandoned business investment.”

As seen above, SMEs in the early growth phase still have not taken root, and it is difficult for financial insti-tutions, venture capital firms and other finance provid-ers to assess just how much cash flow will come from companies’ projects in the future. For this reason, it is conceivable that more than a few SMEs that are carry-ing out research and development work that shows future promise are unable to secure sufficient funding for their research and development and have no option but to cut back on business investment or abandon business invest-ment altogether.

(2) Sources of funding for SMEs that carry out research and development

Next, where SMEs that carry out research and devel-opment actually receive funding from will be examined.

Fig. 2-5-4 [1] and Fig. 2-5-4 [2] show the funding sources of SMEs that carry out research and development and those that do not with their answers grouped according to each of the developmental phases. By looking at both graphs one can see three main characteristics relating to the fund procurement of SMEs that carry out research and development.

Firstly, in all three developmental phases, more than 80% of SMEs that carry out research and development as well as those that do not source their funds from financial institutions primarily in the form of loans. Gen-erally, since evaluating the content of SME projects and monitoring the implementation of their projects would be costly for the lenders, sourcing funds primarily from financial institutions in the form of loans is considered to be a characteristic of SME fund procurement, and so it is understandable that early growth phase SMEs that carry out research and development also use loans from financial institutions as their primary source of funding.

Secondly, the earlier the developmental phase an SME is in, the more likely it is to source funding from company representatives and executives; with early growth phase SMEs that carry out research and development approxi-mately 70% do so, and this is a much larger percentage than the approximately 40% seen amongst early growth phase SMEs that do not carry out research and develop-ment.LookingatFig.2-5-3above,30%ofearlygrowthphase SMEs that carry out research and development answered that they procured the necessary amount of funds by increasing the amount of funding they receive from in-house sources (representatives, relatives and acquaintances, executives, company funds) when they are

Fig. 2-5-1 [2] Management challenges by developmental phases (SMEs that do not conduct R&D)Many SMEs in each of the developmental phases feel that “expanding domestic sales networks and strengthening selling power” and “acquiring management-level staff” were greater management challenges than “securing a source of funds”


50.0

42.4 43.9 45.2

21.421.425.4 24.1 24.324.5

22.022.0

13.813.815.815.8

40.8

35.4 34.7 35.1

20.420.4 21.521.524.2 22.9

19.4

29.0

19.9

23.6

31.6

23.7

13.015.9

5.17.5

4.4 5.5

0

10

20

30

40

50

60

(%) Expanding domestic sales networks and strengthening selling power

Streamlining the production department and costs

Acquiring excellent research and development personnel

Acquiring management-level staff Development of new areas Improvement of internal control and compliance structure

Securing a source of funds Strengthening overseas strategy



141

Section 5

Fig. 2-5-2 Situation of fund procurement by development phases (comparison of SMEs that conduct R&D and those that do not)Early growth phase SMEs that conduct R&D in particular are less likely to be able to secure the desired amount of funds

2.62.9

4.0

0

10

20

30

40

50

60

70

80

90

100

SMEs that conduct R&D

SMEs that don’t conduct R&D

Early growth phase



Growth and expansion phase



Stable phase



Total of phases

Desired amount procured Desired amount not procured(%)

61.361.3

83.083.0 87.987.994.194.1 97.497.4 97.197.1 93.993.9 96.096.0

38.738.7

17.017.0 12.112.15.95.9 6.16.1

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Note: Statistics based only on SMEs.

Fig. 2-5-3 Measures employed by growth phase SMEs that conduct R&D when they are unable to secure as much funding as they would likeApproximately 30% of early growth phase SMEs that conduct R&D answered that they had “cut back on business investment” and approximately 10% answered that they had “abandoned business investment”

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Note: Statistics based only on SMEs.

32.534.7 35.5

34.2

30.0

22.4

41.9

30.0

25.0

28.6

16.1

24.2

10.0

6.13.2

6.7

0

5

10

15

20

25

30

35

40

45


Cut back on business investment due to the inability to secure the necessary amount of funding

Achieved the necessary amount by increasing the amount of funding received from in-house sources (representatives, relatives and acquaintances, executives, and company funds)Achieved the necessary amount by increasing the amount of funding received from external sources (sources other than the desired funding sources)Abandoned business investment due to the inability to secure the necessary amount of funding

(%)


142

unable to procure enough funds. This shows the reality that SMEs tend to fund their research and development with investments and loans from company representatives and executives.

Thirdly, one can see that the earlier the developmental phase an SME that carries out research and development is in, the more likely it is to source funds from venture

capital investors, and that 17.1% of early growth phase SMEs that carry out research and development source their funding from angel investors,72) though this percent-age is low compared to that of the other fund procurement methods.

Above, we looked at conditions relating to SMEs’ fund procurement. Next we will look at what sources

Fig. 2-5-4 [1] Source of funding by developmental phase (SMEs that conduct R&D)The percentage of SMEs procuring funds from financial institutions is high in all developmental phases, however, the earlier the developmental phase an SME is in, the more likely it is to source funds from representatives and executives, and for early growth phase SMEs that conduct R&D, the ratio is approximately 70%


82.9

91.3 91.9 91.3

17.122.0

27.4 25.5

68.6

28.7

19.224.3

45.7

16.210.3 13.7

28.6

13.0 11.9 13.1

35.2

13.0 11.0 12.917.1

1.0 0.2 1.40

10

20

30

40

50

60

70

80

90

100


Financial institutions Company funds (cash flow) Representative/Executives Venture capital firms

Business partners/affiliated companies

Relatives/acquaintances Angel investors(%)

Fig. 2-5-4 [2] Source of funding by developmental phase (SMEs that do not conduct R&D)As is the case with SMEs that conduct R&D, the proportion of companies procuring funds from financial institutions is high, while the proportion of companies procuring funds from the capital market is low

86.3 87.8 87.4 87.4

17.9 19.923.5 22.6

42.1

19.6 18.0 19.416.811.0 10.8 11.1

7.4 6.0 6.7 6.6

20.0

7.7 7.9 8.4

1.1 0.5 0.1 0.20

10

20

30

40

50

60

70

80

90

100


Representative/ExecutiveCompany funds (cash flow)Financial institutions

Venture capital firms


Angel investorsRelatives/acquaintances(%)


72) Here angel investor refers to an ordinary investor who invests as an individual in a company during the pre-inauguration to early growth phase with the hope of receiving a high return through capital gain when the company goes public or at other times.


143

Section 5

of funding SMEs would like to procure funds primarily from, and this will be compared with where they actually do end up sourcing their funds.

Fig. 2-5-5 [1] and Fig. 2-5-5 [2] show the desired fund-ing sources of SMEs that carry out research and devel-opment and those that do not, grouped according to the developmental phase they are in. According to the graphs, the most desired funding source for both SMEs that carry out research and development, and those that do not in

every developmental phase was financial institutions.Also, 52.9% of early growth phase SMEs that carry

out research and development would like to procure funds from venture capital investors, but as Fig. 2-5-4 [1] shows, only 45.7% of early growth phase SMEs that carry out research and development actually do procure funds from venture capital investors, and this possibly shows that some of the SMEs that want to procure funds from venture capital investors are unable to actually do so.

Fig. 2-5-5 [1] Desired funding sources by developmental phase (SMEs that conduct R&D)Generally, the percentage of SMEs that desire funding from financial institutions is high, however, 52.9% of early growth phase SMEs desire funding from venture capital firms


83.790.7 91.6 90.9

26.9 25.230.8 29.3

55.8

24.918.1

21.9

52.9

18.8

10.114.6

30.8

15.611.6 13.7

26.9

10.5 11.2 11.919.2

1.7 0.4 1.80

10

20

30

40

50

60

70

80

90

100


Financial institutions Company funds (cash flow) Representative/Executives Venture capital firms


Relatives/acquaintances Angel investors(%)

Fig. 2-5-5 [2] Desired funding sources by developmental phase (SMEs that do not conduct R&D)The percentage of SMEs desiring loans from financial institutions is high in each developmental phase

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008)Notes: 1. Statistics based only on SMEs. 2. Due to multiple responses, the total exceeds 100.

83.288.0 87.6 87.5

23.2 22.825.9 25.2

37.9

16.0 17.7 18.323.2

12.0 11.0 11.717.9

5.8 7.4 7.610.5

6.5 6.3 6.51.1 1.0 0.1 0.3

0

10

20

30

40

50

60

70

80

90

100


Financial institutions Company funds (cash flow) Representative/Executive

Venture capital firms


Angel investorsRelatives/acquaintances(%)


144

An SME that procured funds from venture capital investors in order to expand operations overseas2-5-1

Matsuya R&D Co., Ltd. based in Ono City, Fukui Prefecture, with a workforce of 28 and capital of ¥125 million, is an SME that specializes mainly in manufacturing blood pressure cuffs and sewing machines used to sew automobile-related prod-ucts. The company boasts world-leading sales of the sewing machines used to make automobile safety-related products such as airbags, seatbelts, and car seats, and it is said that approximately 90% of such products installed in cars made in Japan were manufactured using their machines. In 2000, the company applied the sewing technology it had up to then developed to the manufacturing of blood pressure cuffs, and this has since grown into the company’s core business. In response to the increase in orders the company receives for blood pressure cuffs, in 2004 it set up an overseas subsid-iary in Dalian, China, and in 2008 it set up another in Shanghai and one more in Dong Nai, Vietnam, with the aim of increasing production capabilities and setting up overseas sales offices.

Since being founded in 1982, the company had

primarily sourced its funds from financial institu-tions in the form of loans, but with the prior invest-ment needed for the launch of the subsidiary in China, and the expected increase in running costs resulting from increased sales, the company consid-ered the idea of utilizing capital investments that have no repayment obligations. In May 2006 they received an investment of capital from Masumo Venture Capital, and in October of the same year they received a further investment from Nippon Venture Capital Co., Ltd. By receiving investments from venture capital firms, the company was able to extend its operations abroad without worrying about having to search for funds from investors, and thanks also to the smooth operation of the overseas subsidiaries the company’s sales are grow-ing. The company’s overseas subsidiaries currently deal mainly with Japanese-owned companies that have expanded their operations into China and Vietnam, but in the future the company hopes to start dealing with local enterprises as well.

Case

An SME that succeeded in commercializing the use of microorganisms in environmental purification2-5-2

Big Bio Co., Ltd., based in Uki City, Kumamoto Prefecture, with a workforce of 16 and capital of ¥46 million, is a company that researches, develops and produces lifestyle products that utilize micro-organisms. Ms. Keiko Sakamoto, the president of the company, attended an environmental seminar out of personal interest, and it was there that she learned about the nature of microorganisms, and following six years of research and development, she succeeded in developing the “Eco Bio Ring,” a concrete block infused with bacillus natto bacteria that can purify water. Since its foundation in 2000, the company has developed a wide variety of products utilizing microorganisms, including water purifiers and mold removers, and the company’s products have been praised for their environmen-tal friendliness and safety.

When carrying out research and development prior to and after the founding of the company, it was difficult to borrow funds from financial institutions as the utility of the technology being developed was not clear, there was no market for the products, and the company had no col-lateral. Therefore up until the point of product

commercialization, the development costs were paid for out of the president’s own personal funds and loans from friends and acquaintances.

However, since a stable and long-term supply of funds is necessary, in order to mass produce and develop a market for a product, the company applied to the Kumamoto Entrepreneur Support Center for an investment of capital, and after submitting research and experiment results and giving presentations, the company received funds from the center in 2002. This helped the company to take root, and the company was later able to procure funds from financial institutions without any difficulty.

The company’s Eco Bio Ring blocks were used in the Melaka River water purification project in Malaysia in 2002. The company now has a subsid-iary in Shanghai, China, has set up exclusive agents in Taiwan, Hong Kong, India, and South Korea, and has been receiving inquiries from Canada and South America. The company is currently aiming to expand not only its domestic market, but its over-seas markets as well.

Case


145

Section 5

2. The present state of SME equity financing 73) and related issues

The previous sub-section looked at how SMEs that engage in research and development have difficulty in procuring sufficient funds (especially those that are in the early growth phase). When SMEs carry out research and development in order to develop new products, they need to find a source of funds to help pay for the research and development costs, but the cash flow that new products create doesn’t materialize until the research and development work has been successfully completed, the new products are released on the market, and sales are recorded. For this reason, if an SME were to procure funds through the use of loans, they would need to make loan repayments while still working on their new project. This would lead them to default on their debt, and would make it difficult for them to continue with their research and development activities. So when procuring funds for the prior investment required for carrying out research and development, procuring funds through investment (equity financing) is considered crucial as, unlike bor-rowed money, it does not require repayment.

The previous sub-section showed that SMEs carrying out research and development tend to desire receiving funding from venture capital investors, and that many SMEs do in fact procure funds in this way. Taking this into consideration, this sub-section will look at the present

state of SME equity financing and the issues relating to it, focusing particularly on venture capital investment, among the various equity financing methods.

(1) The present state of venture capital investmentFirst will be a look at the present state of venture

capital investment. Fig. 2-5-6 is based on the 2008 Annual Survey of Japanese Venture Capital Investment carried out by the Venture Enterprise Center and shows the trends in the annual number of investment funds founded each year in Japan since 1982, and shows the total annual amount of money invested in them each year.Lookingat thegraph,onecansee thatafter1998there was a rapid increase in the annual number of invest-ment funds that were founded and in the total amount of investments made, and that close to 50 investment funds were founded in 2004 and 2005. The total investments made in each of those years exceeded ¥150 billion. Reasons for this include, firstly, the implementation in 1998oftheLimitedPartnershipActforVentureCapitalInvestment for SMEs, etc.74) (hereinafter referred to as theSMELimitedPartnershipAct).Until this act cameinto effect, the limited liability of each investor was not secured by law in investment partnerships, and disclosure rules for investment partners were unclear. However with the implementationof theLimitedPartnershipAct, thelegal framework was revised, the limited responsibility of general partners that are not managing partners was also

73) Equityfinancingreferstoraisingfundsthroughcapitalaccounttransactions.Thisincludesnotjusttheissuingofstocksthatattractinvestors,butalso issuing bonds with a right to subscribe for new stocks and/or convertible bonds that can be converted into shares sometime in the future.

74) In2004,theSMELimitedPartnershipActwasamendedtobecomethecurrentLimitedPartnershipActforVentureCapitalInvestment(Lim-ited Partnership Act), with the following changes: (1) the provisions for limited partnerships were extended to not only apply to small- and medium-sized venture firms, but also large enterprises and publicly-traded companies; (2) the law was extended to cover not only investment, but also fund procurement through loans, monetary claims and corporate bonds.

Fig. 2-5-6 Trends in the number of investment funds founded and total amount of money invested by starting yearSince 1998, the number of funds founded and the total amount invested had been increasing greatly compared to before 1998, however they have plummeted in recent years

44 3737 84 702

5 4 51 3 2

79

10

7

3 1

11

1915

3

18

34

23

26

21

46 47

27

19

4

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

(Starting year)

(¥100 million)

0

5

10

15

20

25

30

35

40

45

50

(Funds)Total investment amount Number of funds (right axis)

168168 173173 91251251 137137349349

659659 492492265265 342342

478478351351

780780

1,1991,199

404404 430430 551551

1,6131,613

1,8701,870

461461 572572

10110176

Source: Venture Enterprise Center, 2008 Annual Survey of Japanese Venture Capital Investment (January 2009).


146

legally secured, and the right of general partners to obtain partnership business information was established. Since this made it easier to receive investment from individual investors, independent venture capital funds and similar institutions became more actively involved. The Orga-nizationforSmall&MediumEnterprisesandRegionalInnovation (SMRJ) also contributed to the increase in the number of investment funds through its Development of New Business Fields projects (hereinafter referred to as Fund Projects), which entailed directly contributing funds to limited liability partnerships set up by private venture capital firms, in accordance with the Law forFacilitating the Creation of New Business implemented in 1999.75)Lookingat thefundprojectsof theSMRJinrecent years, one can see that there are an increasing number of funds 76) designed by regional financial institu-tions and local government bodies that focus on utilizing local resources, and funds that make use of unique local characteristics set up in collaboration with universities or other companies working in different fields.

On the other hand, from 2006 onward, the numberof funds that have been set up, and the total amount of investments made to funds have decreased significantly.

Starting with the foundation of the TSE Mothers in 1999, Japan’s various stock exchanges all began to create their own emerging equity markets with relaxed stock listing criteria, causing the number of listed companies to grow.77) However, the increase in the number of companies delisting because of legal violations and the number of companies issuing profit warnings immediately after listing eroded investors’ confidence in these emerging equity markets, which, in addition to the effect of a global decline in stock prices, caused emerging equity markets to remain stag-nant after peaking in the end of 2005. All these led to a decline in the number of companies newly listing on stock markets, and this presumably has dampened investment in funds, as the capital gain from initial public offerings is their primary source of investment return.

Also, the total venture capital investment balance in Japan has been in the range from ¥800 billion to ¥1 tril-lion over the last 10 years, but as this is still extremely small when compared to the totals in the United States, and the Eurozone, it has been noted that there is an insuf-ficient supply of risk money flowing to venture firms in Japan (Fig. 2-5-7).78)

75) Thiswasabrogatedin2005andintegratedintothe“LawforFacilitatingNewBusinessActivitiesofSmallandMedium-sizedEnterprises.”76) Atotalof¥133.5billion(ofthis,SMRJinvested¥52.6billion)hasgoneto83venturefundsthroughSMRJ’sfundprojects(attheendofMarch

2008). Since 1999, the number of funds with focused investment themes has increased (Appended note 2-5-2).77) More than 100 companies listed annually in Japan from 1999 to 2007, but the number decreased significantly to 55 in 2008 (Appended note

2-5-3).78) The Ministry of Economy, Trade, and Industry’s Study Group for the Creation and Development of Start-ups Final Report (April 2008) states

“As many venture firms do not possess a great deal of capital and so have only a limited amount of collateral, and do not have sufficient sales revenue for capital to make principal repayments and interest payments, and even if they did have sufficient turnover they would need to keep this in reserve in order to fund their growth, there is a limit to the ways in which they can procure funds through indirect financing, and so it is no exaggeration to say that the extent to which a venture firm can procure risk money through direct financing such as investment, is a key factor in deciding the success of a venture firm’s early growth phase.”

Fig. 2-5-7 Trends in venture capital investment balance in Japan, the United States and the EurozoneThe amount of venture capital investment in Japan is extremely small compared to the United States and the Eurozone

Sources: Venture Enterprise Center, 2008 Annual Survey of Japanese Venture Capital Investment (January 2009); NVCA, NVCA Yearbook 2008; EVCA, EVCA Yearbook 2008.

Notes: 1. Converted at USD1 = JPY90 and EUR1 = JPY117. 2. Data for the United States is for venture capital investment only and for domestic investment. Data for Europe

includes private equity investment and foreign investment. 3. Data for Japan until 2003 includes regeneration and buyout investments, but from 2004 onward, it excludes

regeneration and buyout investments (foreign investment is included in all years). 4. Data for Japan’s investment balance is for the end of March each year.

82.6

131.0

202.6227.5 227.6 228.2 236.6 246.3 251.6

231.4

47.568.3

110.0125.0

144.7162.7

182.7202.8

247.3

302.0

8.4 7.7 8.2 10.2 10.0 9.7 8.8 8.6 9.9 9.80

50

100

150

200

250

300

350

98 99 00 01 02 03 04 05 06 07

United States(¥100 billion)

(Year/Fiscal year)

Eurozone Japan


147

Section 5

(2) Issues surrounding receiving venture capital investment

With the situation explained above, what kinds of issues do SMEs face when attempting to receive venture capital investment?

Fig. 2-5-8 shows the issues surrounding receiving ven-ture capital investment that are perceived by SMEs that have received venture capital investment and those that have not. Many SMEs that have already received venture capital investment mentioned “the repurchase clause if the company fails to list on a stock market within a certain period,”79) “being pressured by venture capital firms to list on a stock market,” and that “practically the only way to redeem is to list on a stock market.” It is worth noting that these issues all relate to listing on a stock market.

In general the main return on investments that venture capital firms make is the capital gain (the profit from rising stock prices) that arises from the initial public offering of a company they have invested in, or the profit

gained when another company buys a company they haveinvestedin(M&A).Fig.2-5-9showstheinvestmentrecovery methods and the profits and losses of venture capital firms in Japan in fiscal 2007. A large percentage of venture capital firms recovered investments through initial public offerings and selling back stock to company managers,butonly3.4%saidtheyhadrecoveredinvest-ments through “selling to a third party.” In addition, methods of investment recovery other than initial public offering yielded almost no profit at all.80)

According to the Venture Capital Firms Supply Condi-tions SurveycarriedoutbyTokyoShokoResearch,Ltd.81), the reasons why investment recovery is biased towards initial public offerings are that venture capital firms say that they “cannot make an adequate profit from any investment recovery methods other than initial public offerings,” “M&A markets are not well enough estab-lished,” they have “a lack of experience in recovering venture capital,” among other reasons (Fig. 2-5-10).

79) This refers to the stipulation in contracts between venture capital firms and companies receiving investment whereby if the company receiving investment becomes unable to list on a stock market, the company or the management of the company promises to buy back the company’s stocks held by the venture capital firm.

80) Ontheotherhand,forventurecapitalfirmsintheUnitedStates,M&Aisoneoftheestablishedinvestmentrecoverymethods,anditisbothmore common and involves a larger sum than initial public offerings (Appended note 2-5-4).

81) A questionnaire carried out in December 2008 survey targeting 850 companies that engage in venture capital investment and other forms of investment(17.3%responserate).

SMEs that have received venture capital investment SMEs that have not received venture capital investment

13.3

0.3

0.9

0.9

4.0

4.6

6.8

9.9

9.3

11.1

11.8

13.6

24.1

29.7

34.7

4.8

20.4

13.1

4.2

14.8

16.2

4.4

2.3

2.5

21.1

50.2

2.3

4.8

Cannot maintain a good relationship with existing financial institutions

Cannot keep it a family business

Not enough funds that match

Lose control of the company’s decision-making process

The method of utilization of funds are difficult to understand

Procedures are complicated

Demands to disclose information are high

The screening process is strict

Don’t want an outsider getting involved in company management

Able to procure sufficient funds through financial institutions

Practically the only way to redeem is to list on a stock market

Being pressured by venture capital firms to list on a stock market

The repurchase clause if the company fails to list on a stock market within a certain period

1.8

11.5

0 0 10 20 30 40 50 60 70 80 90 100102030405060708090100

No issue/do not know

Cannot gain the understanding of stockholders

(%)(%)

Fig. 2-5-8 Issues perceived by SMEs surrounding receiving venture capital investment (with/without investment)While the proportion of SMEs that have already received venture capital investment consider issues related to listing on a stock market are high, many SMEs that have not received venture capital investment answered that they are “able to procure sufficient funds through financial institutions” and the proportion that cite excessive interference in their management process was high as well



148

It is for these reasons that venture capitalists limit their investments to those SMEs that they expect to be able to list on a stock market, and it is possible that this is acting as a hindrance to the growth of the SMEs that they invest in.82)

Now, what do SMEs that have never received venture capital investment consider issues regarding the receipt of venture capital investment? According to Fig. 2-5-8 above, many SMEs that have never received venture capital investment answered that they are “able to procure sufficient funds through financial institutions,” others answered that they “don’t want an outsider get-ting involved in company management,” and that they will “lose control of the company’s decision-making

process,” showing that they were wary of receiving excessive interference in their management process. This is in marked contrast to SMEs who have already received venture capital investment, as few of them perceived such interference in the management process to be an issue.

(3) The shareholder composition of SMEsGenerally speaking, while a company that receives

investment from a new stockholder can use that money to strengthen their financial base without taking on the sort of repayment obligation that borrowing entails, the stockholder may ask the company to disclose its finances, and may participate in the management process.

However, the majority of SMEs that have stockholders

Fig. 2-5-9 Situation of investment recovery methods, and profits and losses of venture capital firms (performance for fiscal 2007)The percentage of investment recovery through initial public offerings and selling back stock to the management of the company was high, while only 3.4% recovered investments through “selling to a third party”

Number of companies Percentage of total (%) Profit and loss (¥1 million)

Initial public offering 249 35.1 11,983

Bankruptcy/dissolution/depreciation 166 23.4 -2,783

Selling back to the management of the company 135 19.0 -1,317

Selling to secondary funds or others 11 1.6 1

Other 124 17.5 222

Selling to a third party 24 3.4 136

Total 709 100.0 8,242


Fig. 2-5-10 Reasons for investment recovery bias toward initial public offeringsVenture capital firms cite that they “cannot make an adequate profit from any investment recovery methods other than initial public offerings” and “M&A markets are not well enough established” as reasons for investment recovery being biased toward initial public offerings

23.121.8

19.2

15.4 15.4

2.6

0

5

10

15

20

25

Cann

ot m

ake

an a

dequ

ate

pro

fit fr

om a

ny in

vest

men

t

reco

very

met

hods

oth

er th

an

initi

al pu

blic

offe

rings

M&A

mar

kets

are

not

well

eno

ugh

esta

blish

ed

Lack

of e

xper

ience

of

reco

verin

g in

vest

men

t

by t

he ve

ntur

e

cap

ital f

irm it

self

Lack

of i

dent

ifica

tion

skills

and

kno

wled

ge o

f

cap

italis

ts (s

taff)

on

reco

very

met

hods

oth

er th

an in

itial

pub

lic o

fferin

gs, s

uch

as M

&As

Small

num

ber o

f com

pani

es

des

iring

reco

very

met

hods

oth

er

than

initi

al pu

blic

offe

rings

,

such

as M

&As

Lack

of i

nfor

mat

ion

on

the

indu

stry

and

fore

ign

inve

stm

ent

(%)

Source: Tokyo Shoko Research Ltd., Venture Capital Supply Conditions Survey (December 2008).Note: Data for venture capital firms and Small and Medium Business Investment and Consultation companies.

82) Many of the companies invested in were in the information technology and biotechnology fields. More than 40% of the investment goes to companies based in Tokyo in terms of both destination and volume (Appended note 2-5-5).


149

Section 5

are so-called “family businesses” with most of their stocks owned by company representatives and their relatives, and the companies arrange matters in a way that means people other than company representatives and their rela-tives are unable to participate in the management process. Fig. 2-5-11 is based on the Financial Conditions Survey and shows the distribution of the rates of stock possession by company representatives and their relatives. More than 60% of SMEs have over 50% of their stocks held by the company representatives and their relatives, and as many as one in four companies have 100% of their stocks held by the company representatives and their relatives.

The fact that many SMEs are family businesses, as explained above, is one reason for the concern voiced about excessive interference in the management process when a company receives venture capital investment. However, do venture capital firms really interfere that much in the management process of the SMEs they invest in? The following sub-section will look at what kinds of relationships exist between venture capital firms and the SMEs receiving venture capital investment.

(4) The relationship between venture capital firms and SMEs

Firstly, what kind of shareholder composition do SMEs that have received venture capital investment have? Fig. 2-5-12 shows the distribution of the rates of stock posses-sion by company representatives and their relatives, and the distribution of the rates of venture capital investment. SMEs that had venture capital investment ratios of 5% or more to less than 25% accounted for 44.7%, while 29.2% of SMEs had investment ratios of 25% or more to less than 50%, and only approximately 10% of SMEs

answered that they had investment ratios of 50% or more. More than 40% of SMEs have the majority of their stock held by company representatives and relatives, even when they receive venture capital investment.

Now, in what ways do venture capital firms participate inthemanagementprocessofSMEs?Fig.2-5-13showsthe ways in which SMEs that receive venture capital investment say venture capital firms participate in their management processes. Approximately 60% of SMEs

Fig. 2-5-11 Distribution of stock possession rates by SME representatives and their relativesMore than 60% of SMEs have over 50% of their stocks held by company representatives and their relatives, and as many as one in four companies have 100% of their stocks held by company representatives and their relatives

Source: Tokyo Shoko Research Ltd., Financial Conditions Survey (November 2008).

Note: Statistics based only on SMEs that are corporations.

4.264.2

0 20 40 60 80 100

0% More than 0% to less than 5%

5% or more to less than 25%




100%

11.111.1

(%)

9.19.1 11.511.5 18.218.2 21.321.3 24.724.7

Fig. 2-5-12 Percentage of stock possession by company representatives and relatives, and the proportion of venture capital investment in companies receiving venture capital investmentOnly about 10% of SMEs answered that they had venture capital investment ratios of 50% or more and more than 40% answered that even with venture capital investment, the majority of their stock was held by company representatives and their relatives

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Note: Statistics based only on SMEs that answered that they are receiving investment.

3.1

1.6

0 10 20 30 40 50 60 70 80 90 100

Proportion of rates of venture capital investment

Proportion of stock possession by company

representatives and their relatives

0% More than 0% to less than 5%



15.215.2

6.56.5

44.744.7

17.717.7

29.229.2

31.531.5

9.39.3

27.727.7

41.241.2

10.9

13.513.5

(%)




150

say they receive “no particular intervention in the man-agement process” from venture capital firms. In addi-tion, according to Fig. 2-5-8 above, only 4.6% of SMEs answered that “losing control of the company’s decision-making process” is an issue when receiving venture capitalinvestment,andonly9.3%answeredthatthereis“strong pressure to disclose company finances.”

Ontheotherhand,whenlookingatthewaysinwhichventure capital firms participate in the management process of SMEs, 27% (of the SMEs that answered that venture capital firms were participating in their manage-ment process) answered that they had “introduced clients and business partners” (Fig. 2-5-13). The value of thistype of hands-on support provided to SMEs by venture capitalfirmsought tobepositivelyappreciated.On thebasis of these surveys, it can be assumed that the majority of SMEs that receive venture capital investment are able to manage themselves with a high degree of freedom and receivelittleinterferencefromventurecapitalfirms.Onthe other hand, rather than interfering in the management process, some venture capital firms are working to provide SMEs with hands-on support such as introducing new clients and providing research and development advice, and it is to be hoped that in the future they will work even more in this way to expand business opportunities for SMEs. There is a need to dismiss the stereotype that when SMEs receive venture capital investment in order to raise funds for research and development activities, they suffer excessive interference to their management pro-cess. Examining the various venture capital firms with their differing investment policies and selecting one that

could turn out to be a good partner for one’s company is perhaps an important thing to consider when looking to receive investment.

(5) Facilitating equity finance for SMEs Sub-section 1 pointed out that a certain percentage

of early growth phase SMEs that carry out research and development are unable to receive venture capital invest-ment despite their wanting to, based on the Financing Conditions Survey. This will now be examined in more depth.

Fig. 2-5-14 shows the management polices of early growth phase SMEs that want to receive venture capital investment and early growth phase SMEs that do not. According to the graph, approximately 40% of early growth phase SMEs that want to receive venture capital investment say that they intend to or plan to list on a stock market, but one may assume that the remaining approximately 60% do not have strong desire to list on a stock market, but they want to receive venture capital investment in order to expand their business and for other purposes.83)

For this reason, it could be said that the development of an environment in which SMEs that are disinclined towards listing on stock markets can also gain access to equity finance or similar types of funds in order to procure capital to fund their research and development activities is an important issue. Presumably one way to achievethiswouldbetodeveloptheM&Amarketsothatventure capital firms could more easily get returns on theirinvestmentthroughthepurchasing(M&A)byother

Fig. 2-5-13 Participation of venture capital firms in the management process of SMEs receiving investmentWhile some SMEs answered that they are receiving hands-on support such as “receiving introductions to clients and business partners,” approximately 60% answered that venture capital firms “don’t receive particular intervention in the management process”

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Note: Statistics based only on SMEs answering that they are receiving investment.

27.0

14.3 11.98.3 6.9 4.2 2.5 1.7

59.8

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20

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70

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83) EvenamongstSMEsinthegrowth,expansionandstabilityphasesthatwouldliketoreceiveventurecapitalinvestment,onlyover40%intendto or are planning to list on a stock market (Appended note 2-5-6).


151

Section 5

companies of SMEs they have invested in that have been successful in their research and development activities, instead of relying only on stock listing as a method to get returns on their investments. Also, the setting up in recent years of funds that focus on utilizing local and other resources through the fund projects of the SMRJ, and the capital financing and other financing facilities of

public-sector SME financing institutions have also been important. In addition, since, as seen above, the number of SMEs carrying out research and development that procure funds from angel investors is small (Fig. 2-5-4 [1]), the revitalizing of angel investment through the uti-lization of the special angel investment taxation and other systems is also presumably a key issue (Column 2-5-1).

Fig. 2-5-14 Preference for receiving investment from venture capital firms and important management polices (early growth SMEs)Approximately 40% of early growth phase SMEs hoping for venture capital investment intend to or have plans to list on a stock market and it is assumed that the remaining 60% or so wish to have venture capital investment for other reasons such as business expansion

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Notes: 1. Statistics based only on SMEs that answered that they are not receiving investment. 2. Due to multiple responses, the total exceeds 100.

32.1

58.3

51.6

21.4

28.324.6

53.6

37.540.639.3

6.7

25.4

7.14.2 3.5

7.12.5 3.5

0

10

20

30

40

50

60

70

Desiring venture capital investment Not desiring venture capital investment Total

Expansion of business due to specialization

Expansion of business due to diversification

Expansion of business due to cooperatives/partnerships with other companies

Intention or plans to list on a stock market Expansion of business through M&A Raise corporate value and sell company to another company

(%)

A venture capital firm focusing on advanced patented technologies that are effective in reducing CO2 emissions2-5-3

OGI Venture Capital Co., Ltd. in Osaka City, Osaka Prefecture, is a company that fosters venture firms through investment and consultation. The company has set up 55 investment funds since its founding in 1999. It invests a total of ¥650 million in 60 companies, and 7 of the companies it invests in have listed their stocks on stock exchanges.

The company has concentrated on creating funds such as their Special Green Sheet Fund which invests in green sheet companies* whose potential seems larger than their stock prices imply. In December 2008 the company set up a fund called “Investment Fund for Advanced Proprietary Technologies for CO2 Reduction” to invest in companies that possess advanced patented technologies that are effective in reducing CO2 emissions. This fund concentrates on the patents and technology held by companies, and supplies funds to companies that possess tech-nologies that can contribute to energy conserva-tion such as CO2 emissions reduction, so that the companies can acquire and maintain patents and work on refining their technology, and the fund

aims to recover its investments through the sale of technology licenses to overseas companies.

The president of the company, Shigeo Miyazato, says, “We hope to continue to make a contribution to the revitalization of our local economy and the fostering of venture firms through the creation of investment funds that focus attention on the unique business models, know-how, and technol-ogy of SMEs.”

*The green sheet system was set up by the Japan Securities Dealers Association in 1997, and is a system whereby investors can buy and sell stocks of unlisted companies. The system is designed to facilitate the financing of unlisted companies and provide a place where investors can liquidate their investments. For stocks to become green sheet stocks, companies need to satisfy certain disclosure rules set by the Japan Securities Deal-ers Association as well as submit to a screening process by the securities companies dealing with the stocks.

Case


152

3. Borrowing from financial institutions by SMEs engaging in research and development

The previous sub-section looked at the present state of SME financing and related issues from venture capitals. This sub-section will look at the SMEs’ raising of funds from financial institutions. As seen in sub-section 1, the majority of SMEs engaging in research and development raise funds by borrowing from financial institutions, and supplying funds to help boost the innovation of SMEs is an important function of financial institutions. Below, while looking at how financial institutions are supplying

funds such as loans to SMEs engaging in research and development, issues regarding the smooth supply of these funds that financial institutions and SMEs need to address will be considered.

(1) The assessment abilities of financial institutionsWhat kind of things do financial institutions place

emphasis on when supplying funds to SMEs engaging in research and development through loans and other means? Fig. 2-5-15 [1] and Fig. 2-5-15 [2] are based on Tokyo Shoko Research, Ltd.’s Survey on Lending Situation by Financial Institutions 84) (hereinafter referred to as Sur-vey of Financial Institutions) and Venture Capital Firms

As we saw in Fig. 2-5-4 [1], some early growth phase SMEs carrying out research and develop-ment procure funds from angel investors. These investors play an important role as a source of funding. In the United States, angel investors, many of whom are executives who have founded their own successful companies, have contributed to the creation and growth of venture firms through spiritedly investing in company founders and early growth phase venture firms.

In order to promote angel investment in Japan, a special angel taxation system was created in fiscal 1997 and has been expanded several times. As part of fiscal 2008 tax revisions, an income deduction system was introduced for angel investment in companies within three years of their establishment and for those that satisfy a number of other requirements (Column Fig. 2-5-1).

It is hoped that with this latest expansion, the angel taxation system will be proactively uti-lized, and angel investment in SMEs that are carrying out research and development in order to produce new innovations will be invigorated.

Column 2-5-1 Encouraging angel investment

Column Fig. 2-5-1 Fiscal 2008 angel taxation system revisions

From fiscal 2008 (Income deduction system introduced)

Preferential taxation measures (the investor can chose either A or B)

Previous system (Angel taxation)

Preferential taxation measures

(1) Time of investment (Note 1) Investment to venture companies is deducted from

other capital gains for that year(2) Time of sale [1] When there is profit The profit amount is halved before taxation [2] When there is loss The loss can be carried over and deducted for

a period of three years starting the next year

(1) Time of investment (Note 2) Deduct (invested amount – ¥5,000) from total income Upper limit is total income x 40% or ¥10 million, whichever

is lower(2) Time of sale (preferential measures for “[1] When there is

profit” is abolished) [2] When there is loss The loss can be carried over and deducted for a period

of three years starting the next year (continued)

(1) Time of investment (Note 1) Invested amount deductable from other capital gains for

that year (continued)(2) Time of sale (preferential measures for “[1] When there is

profit” is abolished) [2] When there is loss The loss can be carried over and deducted for a period

of three years starting the next year(continued)

Note 1: Lower the acquisition price by deducting the invested amount from other capital gains

Note 2: Lower the acquisition price by deducting the amount from total income amount

Drastic revision

A

B

Under certain conditions, preferential taxation measure A is also applicable for individual investment cases for : • Investment destinations of authorized venture capital funds• Companies labeled as a Green Sheet Issue classified in the Emerging Section

84) AquestionnairesurveythatwascarriedoutinDecember2008targeting603commercialbanks,trustbanks,creditassociationsandcreditcooperatives (67.2% response rate).


153

Section 5

Fig. 2-5-15 [1] Items emphasized by financial institutions and venture capital firms providing R&D funds to post inauguration to early growth phase SMEsBoth financial institutions and venture capital firms place emphasis on “future business potential” and “the management capabilities of the company representative,” however while many venture capital firms place emphasis on “the technologies possessed and the business model,” the number of financial institutions focusing on this were few in comparison

Source: Tokyo Shoko Research, Ltd., Survey on Lending Situation by Financial Institutions (December 2008); Venture Capital Firms Fund Provision Survey (December 2008).

Notes: 1. For “venture capitals,” data is for venture capital firms and Small and Medium Business Investment & Consultation companies.


4.9

5.4

6.9

8.5

12.3

21.6

24.7

26.5

45.2

54.5

72.5

1.3

2.5

13.9

3.8

58.2

24.1

24.1

75.9

82.3

00 1010 202030 3040 405060 60507080 807090 90100 100

Transaction record with investment and loan companies

Transaction foundation

Sufficiency of physical collateral

Quality of products and services

Transparency of fund utilization

The technologies possessed and the business model

Sufficiency of guarantee by the guarantee association

Future potential of the business type and industry

Rationality of management policy and business plans

Management capabilities of the company representative

Future business potential

(%)(%)

Items venture capital firms focus onItems financial institutions focus on

Fig. 2-5-15 [2] Items emphasized by financial institutions and venture capital firms providing R&D funds to growth, expansion and stability phase SMEsIn addition to future business potential and management capabilities of the company representative, more financial institutions answered that they focus on “the track record and performance of existing business, and the company’s overall performance” compared to venture capital firms

Source: Tokyo Shoko Research, Ltd., Survey on Lending Situation by Financial Institutions (December 2008), Venture Capital Firms Fund Provision Survey (December 2008).

Notes: 1. For “venture capitals,” data is for venture capital firms and Small and Medium Business Investment & Consultation companies.


5.6

11.8

12.0

13.0

13.3

16.1

17.1

26.1

26.9

45.0

47.6

54.2

13.6

1.2

9.9

8.6

32.1

22.2

18.5

40.7

71.6

61.7

10090807060504030201000102030405060708090100

Sufficiency of physical collateral

Quality of products and services

Sufficiency of guarantee by the guarantee association

Transaction record with investment and loan companies

Transaction foundation

Transparency of fund utilization

The technologies possessed and the business model

Future potential of the business type and industry

The track record and performance of existing business, and the company’s overall performance

Rationality of management policy and business plans

Management capabilities of the company representative

Future business potential

(%)(%)

Items venture capital firms focus onItems financial institutions focus on


154

Fund Provision Survey, and show the things that financial institutions place emphasis on when providing funds for SMEs to carry out research and development compared to the things that venture capital firms emphasize, looking at SMEs’ growth in two phases, with [1] dealing with SMEs in the post inauguration to early growth phases, and [2] dealing with SMEs in the growth, expansion and stability phases. According to the graphs, when supplying funds to post-inauguration to early growth phase SMEs, financial institutions and venture capital firms both place emphasis on “future business potential” and “the management capabilities of the company representative.” However, with regard to “the technologies possessed and the busi-ness model,” many venture capital firms answered that they placed emphasis on it, and this is in marked contrast to the relatively small proportion of financial institutions whogavethisanswer(Fig.2-5-15[1]).Ontheotherhand,when supplying funds to SMEs that have taken root and have reached the growth, expansion, and stability phase, in addition to future business potential and the manage-ment capabilities of the company representative, it is characteristic that financial institutions are more likely than venture capital firms to emphasize “the track record and performance of existing business, and the company’s

overall performance” (Fig. 2-5-15 [2]).So how do SMEs evaluate the approach of financial

institutions, and what kind of areas would they like to see improvements in? Fig. 2-5-16 covers various aspects relating to SMEs’ dealings with financial institutions, and shows the proportion of SMEs that positively rate each of these aspects and the proportion of SMEs that would like to see improvement in each of the aspects. With regards to “lending based on assessment of future business potential” a higher percentage of SMEs felt it needed to be improved than the proportion that gave it a positive rating.85)

In Fig. 2-5-15 [1] and Fig. 2-5-15 [2] above, the most common answer from financial institutions was an emphasis on “lending based on assessment of future business potential,” but presumably those SMEs that engage in research and development in particular would like financial institutions to step up their efforts even further in this respect. Fig. 2-5-17 shows the areas that SMEs engaging in research and development would like financial institutions to improve upon compared with the areas that SMEs that are not engaging in research and development would like to see improved. The percent-age of SMEs engaging in research and development that

Fig. 2-5-16 SMEs’ positive evaluations regarding transactions with financial institutions and aspects to expect improvement onFor “lending based on assessment of future business potential,” more SMEs felt improvement was needed than those who were satisfied with the present situation

Source: Tokyo Shoko Research, Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Notes: 1. Statistics based on SMEs that answered that they conduct transactions with financial institutions. 2. Due to multiple responses, the total exceeds 100.

56.7

46.044.2

26.0 25.2 25.8

8.56.1 4.8

2.5

51.1

21.7

28.2 28.832.3

14.9

10.87.0

18.8

3.7

0

10

20

30

40

50

60

Prom

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fund

s

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Positive evaluation

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Needs improvement

85) Appended note 2-5-7 shows the percentage of SMEs that gave a positive assessment of the current approach taken by venture capital firms, and the percentage that felt it needed to be improved. The percentage of SMEs that gave a positive assessment of “lending based on assessment of future business potential” by venture capital funds was much higher than the perception that said it need to be improved, and the difference to their evaluation of financial institutions in Fig. 2-5-16 regarding “lending based on assessment of future business potential” was striking.


155

Section 5

mentioned “lending based on assessment of future busi-ness potential” was significantly higher than the propor-tion of SMEs not engaging in research and development that gave that answer.

(2) Issues relating to improving the assessment abilities of financial institutions

The assessment abilities of financial institutions in assessing SMEs’ future potential were examined above. Here, they will be analyzed in more detail.

Fig. 2-5-18 shows the change in financial institutions’ “assessment abilities” of SMEs compared to ten years ago. In the Survey of Financial Institutions, over 80% of financial institutions answered that their assessment abilities had improved greatly or had improved somewhat, whereas in the Financing Conditions Survey a little less than 40% answered that the assessment abilities of finan-cial institutions had improved greatly or had improved somewhat, showing a difference in perception between respondents to the two surveys regarding the improve-ment in the assessment abilities of financial institutions.

So what kinds of measures need to be taken in order to improve the assessment abilities of financial institutions, and facilitate the smooth provision of funds to SMEs engaging in research and development?

Fig. 2-5-19 shows the reasons why those financial

institutions and SMEs that answered in Fig. 2-5-18 that the assessment abilities of financial institutions had “hardly changed at all,” “worsened slightly,” and “wors-ened greatly,” gave the answers they did. According to the graph, a large proportion of both financial institutions and SMEs mentioned “a worsening in the knowledge and evaluation abilities of staff” and “a drop in staff numbers resulting from rationalization,” but there was a large dif-ference in the perceptions with regards to “the increasing sophistication and complexity of the technology and busi-ness activities of SMEs.”

Fig. 2-5-20 shows the measures that financial institu-tions themselves believe they need to take in order to improve their assessment abilities. Many financial institu-tions mentioned “staff training and ability development assistance,” “coordination with organizations that have human resources that are knowledgeable in each field,” and “coordination with external technology evaluation organizations.” Some financial institutions are mov-ing to coordinate with and exchange information with local authorities, educational organizations, and other businesses in other fields, and collaboratively develop financial products tailored for SMEs. In addition, there are financial institutions that are collaborating with IT and marketing specialists and partner organizations as regional power collaboration centers 86) to provide support

Fig. 2-5-17 Areas that SMEs would like financial institutions to improve on (with/without R&D)Significantly more SMEs conducting R&D answered that they would like financial institutions to improve on “lending based on assessment of future business potential” than SMEs that do not

Source: Tokyo Shoko Research, Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Notes: 1. Statistics based only on SMEs that answered that they conduct transactions with financial institutions. 2. Due to multiple responses, the total exceeds 100.

50.2

31.934.2

21.7 20.2

13.3 11.78.0

3.7

24.2

18.415.6

9.86.2 5.5

28.7

51.1

32.8

27.2

21.9

0

10

20

30

40

50

60 SMEs that conduct R&D SMEs that do not conduct R&D

(%)

Prom

pt le

ndin

g

whe

n fu

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re n

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sary

Leve

ls of

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86) This program was started in May 2008 to provide one stop shops to help SMEs with a variety of issues such as improving management, developingnewareasofbusiness,businesssuccession,etc.AroundJapan,316organizationssuchaschambers/societiesofcommerceandindustry,andotherswereappointedasregionalpowercollaborationcenters,andmorethan2,000organizationsareparticipating(23financialinstitutions were also appointed as centers, and 500 other financial institutions are also participating).


156

to SMEs in developing new areas of business and improv-ing management. It is to be hoped that through such activities financial institutions will be able to improve their assessment abilities and become better able to judge how to appropriately supply SMEs with funds.

(3) Measures SMEs ought to take What, on the other hand, are the kinds of measures

that SMEs that seek to procure funds ought to be tak-ing? Fig. 2-5-15 [1] and Fig. 2-5-15 [2] show that when supplying funds to SMEs that are engaging in research and development, financial institutions place emphasis on future business potential, the management capabilities

Fig. 2-5-18 Changes in assessment abilities of financial institutions compared to 10 years ago (financial institutions’ viewpoint and SMEs’ viewpoint)While over 80% of financial institutions answered “improved greatly” or “improved somewhat,” a little less than 40% of SMEs responded similarly

Sources: Tokyo Shoko Research, Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008); Survey on Lending Situation by Financial Institutions (December 2008).

0.3

0 10 20 30 40 50 60 70 80 90 100

Viewpoint of SMEs

Viewpoint of financial institutions

Improved greatly Improved somewhat Hardly changed at all Worsened slightly Worsened greatly

7.57.5

74.674.68.78.7

41.241.2

13.413.4

12.812.8

3.13.1

8.08.030.530.5

(%)

Fig. 2-5-19 Reasons for assessment abilities of financial institutions not changing or worsening (financial institutions and SMEs’ viewpoint)Financial institutions cite “a worsening in the knowledge and evaluation abilities of staff” and “a drop in staff numbers resulting from rationalization” as reasons and a high proportion of SMEs cite the same

Sources: Tokyo Shoko Research, Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008); Survey on Lending Situation by Financial Institutions (December 2008).

Notes: 1. Data for financial institutions and SMEs that answered “hardly changed at all,” “worsened slightly,” and “worsened greatly” concerning financial institutions assessment abilities.


60.0

53.8 52.3

23.1

16.9

6.2

44.7

31.7

15.1

27.8

7.4

32.5

0

10

20

30

40

50

60

70

A worsening in the knowledge

and evaluation abilities of staff

A drop in staff numbers resulting

from rationalization

The increasing sophistication and complexity of the

technology and business activities of SMEs

A weakening of long term relationships between financial institutions

and companies

Companies do not provide adequate

corporate information such as for

business plans

Financial institutions are not taking measures

to improve their assessment abilities as part of

their management policy

Viewpoint of financial institutions Viewpoint of SMEs(%)


157

Section 5

of the company representative, and the rationality of management policy and business plans. Fig. 2-5-21 shows the perception of financial institutions regarding the importance of SMEs’ “drafting management policy and business plans” and “quickly and appropriately disclosing information.” More than 90% of financial institutions felt that both of these were either “extremely important” or “important.” Fig. 2-5-22, on the other hand, shows the extent to which SMEs “draft management policy and business plans” and “quickly and appropriately disclose information.” More than 90% of SMEs that engage in research and development say they draft management policy and business plans, but a little less than 70% say they quickly and appropriately disclose information

Financial institutions are aware that SMEs’ technol-ogy and business activities are growing increasingly sophisticated and complicated, but in addition to drafting business plans, SMEs need to work to proactively explain their business activities and the future potential of their business field and other elements to financial institutions to gain their understanding and form better business rela-tions with them.

Fig. 2-5-20 What financial institutions believe need to be done to improve their assessment abilitiesFinancial institutions cite “staff training and ability development,” “coordination with organizations that have personnel that are knowledgeable in each field,” and “coordination with technology evaluation organizations” as measures need to be taken to improve their assessment abilities

Source: Tokyo Shoko Research, Ltd., Survey on Lending Situation by Financial Institutions (December 2008).Note: Due to multiple responses, the total exceeds 100.

97.2

64.4

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40

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Fig. 2-5-21 Perception of financial institutions regarding the importance of SMEs’ drafting management policy and business plans and the prompt and appropriate disclosure of informationOver 90% of financial institutions consider “drafting management policy and business plans” and “the prompt and appropriate disclosure of information” as “extremely important” or “important”

Source: Tokyo Shoko Research, Ltd., Survey on Lending Situation by Financial Institutions (December 2008).

3.86.40.5

0

20

40

60

80

100

Drafting management policy and business plans

Conducting prompt and appropriate disclosure of information

Extremely important

Not important

Important

Not sure(%)

59.859.8

26.526.5

39.739.7

63.463.4


158

Fig. 2-5-22 Situation of SMEs’ drafting management policies and business plans, and the prompt and appropriate disclosure of informationSMEs conducting R&D draft management policies and business plans accounted for 90%, but that drops to a little less than 70% on disclosing information

Source: Tokyo Shoko Research, Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Note: Statistics based only on SMEs.

4.0

0

20

40

60

80

100

SMEs conducting R&D

SMEs not conducting R&D

Total SMEs conducting R&D

SMEs not conducting R&D

Total

Drafting management policies and business plans Conducting prompt and appropriate disclosure of information

Taking action(%)

Not taking action but interested Not taking action and have no interest

88.488.4

74.174.180.680.6

62.262.2

46.946.954.054.0

7.67.6

13.113.110.610.6

27.027.0

29.329.328.428.4

12.812.8 8.88.8 10.810.823.823.8

17.617.6

A financial institution that has improved its assessment abilities through collaboration with local companies and experts

2-5-4

Acting as one of Japan’s 316 regional power collaboration centers, Tama-Shinkin Bank in Tachikawa City, Tokyo, works in collaboration with partner organizations such as local NPOs, university Technology Licensing Organizations (TLOs), techni-cal colleges, and experts such as small and medium enterprise management consultants to solve the management problems of local SMEs.

The main issues they deal with are: 1) introduc-ing new management methods such as business administration utilizing information technology and intellectual asset-based management, 2) devel-oping new business fields through collaboration between agriculture, commerce, and industry and utilizing local resources, 3) supporting the found-ing of new companies, and 4) business succession support. One coordinator who is a staff member of the bank and 11 other coordinators from other partner organizations visit local SMEs, and in col-laboration with other partner organizations and experts work to solve their management problems

in accordance with their needs. Since being adopted into the regional power collaboration centers in May 2008, as of March 2009, the bank helped to solve approximately 1,000 cases.

The bank considers providing information and opportunities to SMEs to help to solve their man-agement problems to be the mission of local finan-cial institutions. As a result of being adopted into the regional power collaboration centers, the bank has been able to form strong connections with partner organizations and experts, and the bank feels that it is now easier for it to gain information and know-how regarding support for SMEs, and that it will be able to improve the ability of staff to make assessments about SMEs and help to solve their problems. The bank intends to continue to work toward solving the management problems of local SMEs and attempt to revitalize their region by further strengthening its connections with partner organizations and experts.

Case

Chapter 3

Employment trends, and securing and training personnel in SMEs

Chapter 1 showed how business conditions and the employment picture in Japan have rapidly declined due to the effects of the global financial crisis, leading to an increasing sense of surplus employment even among SMEs. During the expansion phase which began at the start of 2002, the sense of a shortage of labor in SMEs increased across the board, but since around November 2007, after the Japanese economy entered a recession phase, the employment picture has changed significantly. Since fall 2008 in particular, a large-scale decrease in sales and orders has been experienced, mainly by SME manufacturers, and the number of SMEs with surplus staff increased rapidly. There are more than a few SMEs, however, which continue to feel a shortage of labor. Such SMEs tend to consider a “recession as an opportunity to secure excellent personnel,” presenting a polarized phenomenon in the current employment trends of SMEs.

If attention is focused slightly ahead of current trends, and the shape of the labor market in the future is observed, it can be seen that the working-age population is predicted to decrease substantially due to Japan’s rapidly decreasing population and continually aging society. As such, securing labor is thought to be a more important challenge to SMEs in the medium to long term.

As mentioned above, there are two different vectors operating in the short and medium to long terms. How should SMEs tackle the issue of securing and training personnel with the great changes in the employment environment?

This chapter will consider the current situation and future challenges relating to personnel work-ing in SMEs based on awareness of these problems. Section 1 will look at the current situation in the employment environment and facts about personnel working in SMEs. Then, from the perspective of determining the kind of efforts necessary to increase the will and abilities of those personnel, Section 2 will consider collaboration with universities and other educational institutions. Section 3 will turn to the wages of SME employees, and Section 4 will analyze factors such as how rewarding SME employees find their work. Finally, Section 5 will analyze an important discussion point regarding a review of ways of working, and harmony between work and personal life.

Section 1 Employment trends and the current situation regarding personnel working in SMEs

160


Chapter 1 outlined how the employment picture in SMEs had worsened during fiscal 2008. This chapter turns to the current situation regarding personnel working in SMEs and changes in the employment environment, including medium- to long-term fluctuations in employment trends.

1. Employment trends in SMEs

(1) Current employment trendsFirst is a closer look at the question of how the employ-

ment picture has worsened for SMEs amid the rapid decline in business conditions since fall 2008.

[1] Worsening employment picture and employment adjustment in SMEs

According to MHLW’s Business Activity Caused by Changes in the Economic Climate and Effects on Employment 1) (October 2008) which showed the senseof employment surplus and insufficiency in SMEs in

termsof typeofemploymentasofOctober2008, therewas a large increase in the sense of surplus in “dispatched workers” compared to three months earlier in July 2008. Furthermore, although there remains a strong sense of a lack of “permanent employees” and “contract workers, part-time employees, etc.,” the sense of surplus is grow-ing(Fig.3-1-1).Inlightofthissituation,ifonelooksathow SMEs which are finding their profits squeezed due to the worsening economic climate are responding, it can be seen that on one hand a large number of SMEs are countering the situation by cutting expenses other than labor costs, on the other hand SMEs engaging in wage and employment adjustment account for approximately

1) Inthissurvey“smallandmediumenterprises”aredefinedasestablishmentswithanemployeeoflessthan300.

Fig. 3-1-1 Employment surplus DI by type of employment (July and October 2008)SMEs are increasingly feeling a surplus of employment; In particular, the sense of surplus with regards to dispatched workers has risen greatly

(“surplus” – “insufficient”)

Permanent employees Dispatched workers Contract workers, part-time workers

October 2008 -9.2 13.5 -6.1

(July 2008) (-12.1) (4.5) (-10.0)

Source: MHLW, Business Activity Caused by Changes in the Economic Climate and Effects on Employment: Interview Results by Public Employment Security Offices (October 2008).

Note: Results of interviews with SMEs (establishments with less than 300 employees).

Fig. 3-1-2 Current measures against the effects on business activities due to changes in the economic situation (October 2008)Not a few SMEs are adjusting wages as well as employment


Notes: 1. Results of interviews with SMEs (establishments with less than 300 employees). 2. Statistics based only on establishments that answered that they found “their profits squeezed significantly” or “their

profits squeezed somewhat” due to changes in the economic situation. 3. Export manufacturing industry refers to “Manufacture of general-purpose machinery,” “Manufacture of production

machinery,” “Manufacture of business-oriented machinery,” “Manufacture of electronic parts, devices and electronic circuits,” “Manufacture of electrical machinery, equipment and supplies,” “Manufacture of information and communications equipment,” and “Manufacture of transportation equipment.”

18.8

69.5

12.1

28.5

15.1

25.8

72.2

10.719.1

13.1

0

10

20

30

40

50

60

70

80Overall (Percentage of the export manufacturing industry)(%)

Wage and employment adjustment

Cutting expenses other than labor costs

Eliminating retained earnings

Passing costs onto products and services

Nothing in particular

Chapter 3 Employment trends, and securing and training personnel in SMEs

161

Section 1

20%(Fig.3-1-2).In the export manufacturing industry, around one in

four SMEs which finds their profits squeezed are engag-ing in wage and employment adjustment, and are finding themselves in a particularly serious situation. Lookingmore closely at the details of this wage and employment adjustment, it can be seen that the majority are taking measures such as wage adjustment (by reducing bonuses

for instance) and restrictions on overtime. Meanwhile however, the number of SMEs working to reduce person-nel by dismissal or calling for voluntary retirement is alsoincreasing(Fig.3-1-3).Duetothesecircumstances,the government has relaxed the conditions for using the Employment Adjustment Subsidy, and it is hoped that SMEs will make efforts to sustain employment through the application of this kind of support system.2)

2) Asapartof theemploymentmeasures itcarriedout inDecember2008,MHLWreviewed theoriginalEmploymentAdjustmentSubsidysystem, and established the Emergency Employment Stability Subsidy System for Small and Medium Enterprises. The objective of the system is to “subsidize part of the allowances relating to time off, training and transfers, or the wages of SME proprietors, in the event that their production has decreased giving them no choice but to curtail business activity and either temporarily make their employees take time off, or send them for training and transfers, due to worsening business profits because of economic factors such as the financial crisis and changing business conditions.”

After the system was established, it was revised on February 6, 2009 to (1) relax the method of checking the requirements for payment from “production volume as a rule” to “sales or production volume,” (2) abolish the length requirement of at least one twentieth of the agreed total numberofdaysofemployment,forthetotalnumberofdaysoftimetakenoff(holidaysandtraining),(3)increaseofthelimitforthenumberofdaysprovidedforfrom“200daysin3years(witha100daylimitinthefirst1yearperiod,thennoreuseofthesystemallowedfor1yearafteritsuse)”to“300daysin3years(witha200daylimitinthefirstyear,andconsecutiveuseofthesystemallowed),and(4)intheeventthat short-term time off is implemented, what used to require “1 hour or more for all target employees, carried out at once” was changed so that “closure carried out for 1 hour or more per target employee” is also eligible.

DuetoanotherrevisionofthesystemonMarch13,2009,ifthelastdayofthedecidedbaseperiodfallsafterMarch13,2009,overtimeandholidayworkisnottobeoffsetwithdaysoffwork.Furthermore,afteranotherrevisiononMarch30,2009,whentheEmergencyEmploymentStability Subsidy System for Small and Medium Enterprises is applied and suspensions and so on are implemented, if the proprietor attempts to maintain the employment by, for example, not dismissing company employees during the decided base period or the six month period right before (including stopping employment of fixed-term contract workers and mid-contract termination of dispatched workers due to the proprietor’s circumstances), the subsidy rate is raised from “four fifths” to “nine tenths.”

The situation regarding the acceptance of plans to implement suspensions and other matters in relation to the Employment Adjustment Subsidy system as of February 2009 is as follows. Among SMEs, a preliminary group of 28,691 enterprises has submitted plans, targeting 1,154,790individuals(inDecember2008itwas1,690establishments,targeting100,875individuals).OnMarch30,2009,theEmploymentAdjustment Subsidy system was expanded, and a subsidy was established for reducing overtime and maintaining employment to assist busi-ness proprietors who reduce overtime hours and sustain employment.

Fig. 3-1-3 Implementation of wage and employment adjustmentSome SMEs have been reducing personnel by dismissal or calling for voluntary retirement as a result of changes in the economic situation


Notes: 1. Results of interviews with SMEs (establishments with less than 300 employees). 2. Statistics based only on establishments that answered that they found “their profits squeezed significantly” or “their

profits squeezed somewhat.”

38.5

15.8

57.0

12.0

20.117.8

3.3 3.4

45.2

18.4

55.6

8.3

21.323.4

3.4 4.4

0

10

20

30

40

50

60

July 2008 October 2008(%)

Rest

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the

num

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of w

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162

[2] Mismatch in employmentWith the employment picture in SMEs worsening in

this way, an employment mismatch is also appearing. Chapter 1 showed that the SME worker surplus and insuf-ficiency DI (“surplus” – “insufficient”) turned to a surplus intheperiodfromOctobertoDecember2008,andthatin the period from January to March 2009 this sense of surplus showed further increases (Fig. 1-2-11). However, when looking at changes in the ratio of enterprises that responded “surplus” and those that responded “insuf-ficient,” the basis for the calculation of the worker surplus and insufficiency DI, it becomes apparent that while the ratio reporting “insufficient” is currently decreasing, it still remainsataround7%(Fig.3-1-4).Lookingat thisby industry, it can be seen that the sense of employment surplus and insufficiency are at relatively similar levels in the services and retail trade industries. In the manufac-turing and wholesale trade industries though, the sense of surplus greatly exceeds the sense of insufficiency. This kind of mismatch can be seen appearing both between industrytypes,andwithinthesameindustry(Fig.3-1-5).Fig.3-1-6showsthedifferencesinthenumberofactiveopenings and active applications in terms of occupation. It confirms a mismatch appearing with a surplus in the occu-pation of “general office work” on one hand and a lack of personnel in specialist occupations such as engineering,

and medical and welfare-related on the other. It is neces-sary to resolve this employment mismatch by facilitating new employment opportunities for workers who have lost their jobs.

As mentioned above, the sense of employment surplus in SMEs as a whole is growing together with the mismatch in employment. When Regional Bureaus of Economy, Trade and Industry visited SMEs from December 2008 through January 2009 and held interviews,3) they found that SMEs treasure their personnel, and that as such there was no shortage of SMEs wishing to provide training that was not possible during busy periods, for employees who have found spare time due to reduced production. As canbeseeninFig.3-1-7,manySMEmanagersconsiderpersonnel to be the most important of their management resources, than anything else, and this result can be thought of as showing just how important personnel are to SMEs. SMEs also account for a considerable share when it comes to providing places of employment in Japan, and therefore, they need to refrain from being shortsighted. The efforts to invest in human capital, in the form of employee training and other elements, are anticipated, considering prospects for achieving development in the future.4)

So how will the employment environment relating to SMEs develop in the future? Next is a look at the medium- to long-term employment trends in SMEs.

Fig. 3-1-4 Trends in the sense of insufficient employment felt by SMEs 7% of SMEs feel that there is “insufficient” employment

Source: SME Agency and SMRJ, Survey on SME Business Conditions.

0

10

20

30

25

15

5

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I

98 99 00 01 02 03 04 05 06 07 08 09

(Year/quarter)

Surplus Insufficient(%)

3) SeetheSMEAgency’sEmergency Expanded Bureaus of Economy, Trade and Industry Directors-General Meeting (February 2009).4) IncollaborationwithMAFFandMHLW,METIselected1,400enterprisesinterestedinhiring,andexcellinginhumanresourcedevelopment

inFebruary2009,asthe“1,400EnterprisesCreatingEmployment.”Fordetails,seeColumn3-1-1.


163

Section 1

Fig. 3-1-5 Trends in the sense of insufficient employment felt by SMEs by industry typeIn the manufacturing and wholesale trade industries though, the sense of surplus greatly exceeds the sense of insufficiency


Surplus Insufficient

[1] Manufacturing industry

[3] Retail industry [4] Service industry

[2] Wholesale trade industry

0

5

10

15

20

25

30

0

5

10

15

20

25

30

I II III IV98

I II III IV99

I II III IV00

I II III IV01

I II III IV02

I II III IV03

I II III IV04

I II III IV05

I II III IV06

I II III IV07

I II III IV08

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I II III IV99

I II III IV00

I II III IV01

I II III IV02

I II III IV03

I II III IV04

I II III IV05

I II III IV06

I II III IV07

I II III IV08

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I II III IV99

I II III IV00

I II III IV01

I II III IV02

I II III IV03

I II III IV04

I II III IV05

I II III IV06

I II III IV07

I II III IV08

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I II III IV99

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I II III IV01

I II III IV02

I II III IV03

I II III IV04

I II III IV05

I II III IV06

I II III IV07

I II III IV08

I09

(%)

(Year/quarter)

(Year/quarter)

(%)

0

5

10

15

20

25

30

0

5

10

15

20

25

30

(%)

(%)(Year/quarter)

(Year/quarter)

Fig. 3-1-6 Differences in number of active openings and active applicants by occupationParticularly in specialist occupations, the number of active applicants greatly exceeds the number of active openings

Source: MHLW, Report on Employment Service (February 2009).Notes: 1. Only the top and bottom five types of work have been extracted. These have been calculated by subtracting the

number of active applicants from the number of active openings in terms of occupation. 2. Both the numbers of active openings and active applicants are regular figures (excluding those for part-time). 3. Figures for “management work,” “security work,” and “agriculture, forestry and fisheries work” have been calculated

based on broadly classified occupations. 4. “Non-classifiable occupations” have been deducted. 5. Transport service work refers to “transport, shipment, taking inventory, delivery, and packing of goods.” Other labor

work refers to “cleaning machinery, organization of materials, miscellaneous tasks and other unclassified labor work at government buildings, schools, stores, hospitals, stations, etc.” General office work refers to those involving general affairs, documentation, personnel affairs, welfare, planning, surveys, etc. (including secretarial and reception work).”

41,10425,856 19,320 11,666 11,481

-40,339 -52,743 -89,072

-195,520

-346,822 -400,000

-350,000

-300,000

-250,000

-200,000

-150,000

-100,000

-50,000

0

50,000

100,000

(Persons)

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164

(2) Medium- to long-term changes in the employment environment

First is to examine the employment environment dur-ing the economic recovery phase which began in 2002. Fig.3-1-8 looksatpermanent employeesaged15 to34working in SMEs and large enterprises 5) in terms of their terminal education record. While the percentage of university and graduate school graduates is the highest in large enterprises, in SMEs the highest percentage is that of high school graduates. This clearly shows that high school graduates occupy a large part in the adoption of personnelbySMEs.Lookingat thevacancyfillingratefor high school graduates in SMEs though, it can be seen that the number of new graduates finding employment in large enterprises increased during the economic recovery period of March 2004, while the number finding employ-ment in SMEs decreased. As a result, there was a sig-nificant fall in the filling rate, and this contributes to our understanding that securing personnel was difficult for SMEs in the economic recovery phase, compared to large enterprises(Fig.3-1-9).InWorksInstitute,RecruitCo.,Ltd.’s 25th Works University Graduate Job-Opening-to Application Ratio Survey (2009 Graduates) (April 2008), it is shown that with regards to university graduates as

Fig. 3-1-7 Management resources that SMEs consider the most importantMany SMEs consider “personnel” to be the most important

Source: SME Agency, Survey on Personnel Management (November 2008).

Notes: 1. Excludes “no responses.” 2. Statistics based only on SMEs.

Personnel(47.7%)

Personnel(47.7%)

Technology(24.8%)

Technology(24.8%)

Funds(9.3%)Funds(9.3%)

Image and brand of enterprise (7.7%)

Information (5.5%)

Facilities and equipment (5.0%)

The “1,400 Enterprises Creating Employment” is a selection of approximately 1,400 companies which are interested in hiring and who believe that “recession periods are a chance to secure personnel.” It was compiled in February 2009 by METI, in collaboration with MAFF and MHLW, through the combined efforts of all the institutions concerned. In defiance of the current situa-tion, described as being a “once in a hundred years recession,” the “1,400 Enterprises Creating Employment” are nurturing the finest personnel. They are enterprises in which the individuals responsible for human resource development are doing their utmost to develop employees brim-ming with “the will to work.” Practically all the employees in these enterprises are receiving thorough training, focused around OJT, while remaining active as core members of staff. The goal is to highlight the necessity of “people” in operations, while promoting efforts to secure personnel and contribute to resolution of the mismatch in employment by spreading information on the merits of these kinds of enterprises across to a larger number of people.

In addition, on April 7, 2009 it was decided that leading examples aiming to create employment in regional communities would be introduced via METI, job cafés and so on (“5,800 Enterprises Creating Employment Recommended by the Region”).

The SMEs included in this White Paper, as Case 1-3-2, Case 2-2-4, Case 2-3-1, Case 2-3-4, Case 2-4-4, Case 2-5-2, Case 3-2-2, Case 3-4-3 and Case 3-5-5 were all selected among the “1,400 Enter-prises Creating Employment.”

Column 3-1-1 1,400 Enterprises Creating Employment

5) In MIC’s Employment Status Survey, “employees at companies and other organizations excluding executives,” are divided into categories according to the title used at their place of work, including “regular staff and employees,” “part-time workers,” and “side-job workers.” In this chapter, when carrying out analysis using these statistics, unless otherwise specified, “employees at companies and other organizations excluding executives” shall be referred to as “employees,” “full-time regular employees (persons employed for more than one year or under contracts for no fixed term of employment excluding directors) who are called “regular staff and employees” at their place of work are defined as “permanent employees,” while “employees at companies and other organizations excluding executives” other than “permanent employees” are defined as “non-permanent employees.”


165

Section 1

Fig. 3-1-8 Terminal education records of permanent employees by employee size (age 15 – 34, 2007)Among permanent employees aged 15–34, a higher percentage of SMEs employ high school graduates

Source: Recompiled from MIC, 2007 Employment Status Survey. Notes: 1. Permanent employees refers to “regular staff and employees” in the above survey. 2. Statistics based only on non-primary industries (excluding “government and other public organizations,” and “other

corporate bodies”). 3. Enterprises with 299 or less employees (99 or less for the wholesale and service industries, and 49 or less for the

retail industry, and eating and drinking establishments) are classed as SMEs. Enterprises with 300 or more employees (100 or more for the wholesale and service industries, and 50 or more for the retail industry, and eating and drinking establishments) are classed as large enterprises.

42.242.2

31.131.1

27.327.3

20.620.6

21.721.7

45.645.6

8.88.8

2.72.7

0% 100%

SMEs

Large enterprises

High school graduates

Other, unknownUniversity and graduate school graduates

Special training college, junior college and technical college graduates

Fig. 3-1-9 Trends in the number of active openings, newly employed persons and filling rates for high school graduates by employee sizeFrom 2004 through to 2008, it became more difficult for SMEs to recruit high school graduates

Source: MHLW, Report on Employment Placements for New Graduates (High School and Junior High School Graduates). Notes: 1. Data about the recruitment and employment placement for new graduates for each year have been handled by public

employment security offices and schools. 2. Filling rate = number of newly employed persons / number of active openings × 100 3. Enterprises with less than 100 employees are classed as SMEs and those with more than 100 employees are classed

as large enterprises.

83.1 83.1 84.3

96.5 95.889.3

81.474.9

71.471.4

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radu

ates

Mar

ch 2

002

gra

duat

esM

arch

200

3 g

radu

ates

Mar

ch 2

004

gra

duat

esM

arch

200

5 g

radu

ates

Mar

ch 2

006

gra

duat

esM

arch

200

7 g

radu

ates

Mar

ch 2

008

gra

duat

es

0

10

20

30

40

50

60

70

80

90

100(%) (%)

[1] Large enterprises [2] SMEs

Filling rate (right axis)

61.5 61.5 61.9 61.359.2

50.1

43.237.0 33.833.8

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

0

10

20

30

40

50

60

70

80

90

100

Newly employed persons (graduates)Active openings

(Persons)(Persons)


166

well, the harsh recruitment environment has continued for enterpriseswithasmallworkforce(Fig.3-1-10).Itcanbeassumed that the recruitment environment for graduates in SMEs was difficult, regardless of whether the graduate was from high school, university or other institutions.

As just stated, there is currently an increasing sense of surplus staff, and although it can be expected that these circumstances will become less severe, it is also predicted that the population of Japan will decrease in the future, and that the percentage of the population of persons aged 15 to 64, i.e. the working-age population, willfallsignificantly(Fig.3-1-11).Inthelongterm,itcantherefore be assumed that securing personnel in a single enterprise will again become difficult. As already seen in Fig.3-1-4andFig.3-1-5though,thereisalackofstaffinsome SMEs, even in the current recessionary phase. This can therefore be thought of as an opportunity for such enterprises to secure new personnel.

2. Current situation regarding human resources working in SMEs

The previous sub-section outlined trends relating to the employment picture in SMEs, and the future outlook. With this in mind, how should SMEs tackle the issues of securing and training personnel?

This will be considered specifically from Section 2 onwards. However, before that, another look will be taken at the kind of role SMEs have been playing in providing places of employment. Then a closer look will be taken at how the circumstances surrounding personnel working in SMEs have developed. Specifically, the ways in which

type of employment, wage trends, working hours and other factors are changing in SMEs will be considered.

(1) The capability of SMEs to sustain and create employment

First will be a look at the kind of role SMEs are play-ing in sustaining and creating employment. Based on recompiled data from MIC’s Establishment and Enter-prise Census of Japan, it is apparent that SMEs provided the places of employment for 27.84 million people in 2006,6) and accounted for approximately 70% of the places of employment in non-primary industries (exclud-ing government and public offices). However, although the Establishment and Enterprise Census of Japan is a complete census, there is relatively less information relat-ing to factors such as worker characteristics compared to the labor-related statistics of, for instance, MIC’s Employ-ment Status Survey. Therefore, this chapter’s analysis will mainly make use of labor-related statistics. According to the results of the recompiled data from the Employment Status Survey, SMEs were responsible for the employment of 20.81 million people as of 2007, making up the major-ity of places of employment in enterprises in non-primary industries (excluding government and public offices).

Fig. 3-1-12 presents the results of examining thechanges in the number of employees per company in large enterprisesandSMEsbyusingMOF’sFinancial State-ments Statistics of Corporations by Industry to look at the question of how employee size has changed in individual enterprises until now. In large enterprises, the number of employees per company in non-manufacturing industries has remained mostly steady on one hand, while it has

Fig. 3-1-10 Trends in the active opening rates for university graduates by employee sizeThe recruitment environment for enterprises with less than 1,000 employees has remained severe

Source: Works Institute, Recruit Co., Ltd., 25th Works University Graduate Job-Opening-to Application Ratio Survey (2009 Graduates) (April 2008).

Note: Active opening rate for university graduates = total number of active openings / applicants to private enterprises.

2.01

2.73

3.11

1.88

1.551.78

2.36 2.302.55 2.53

2.77

3.42

4.22 4.26

0.32 0.360.54 0.57 0.49 0.48 0.53 0.52 0.50 0.56 0.68 0.75 0.77 0.77

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

March 1996 graduates







Less than 1,000 persons 1,000 persons or more(Times)

6) This is the total of (a) regular employees at companies and (b) the total number of employees at sole proprietorships.


167

Section 1

Fig. 3-1-11 Trends in the population and population projections by age bracketThe population of persons aged 15–64 is expected to decrease

Sources: MIC, Population Census; National Institute of Population and Social Security Research Population Projections for Japan (December 2006 Projections).

Notes: 1. Projected populations are based on median birthrate (median mortality rate) projections. 2. The percentage of the population of productive age is the percentage of persons aged 15–64 out of the total population.

0

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140,000

1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050(Year)

0

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(%)

Aged 0 – 14 Aged 15 – 64 Aged 65 and above

(1,000 persons)

Actual value Projected population

Productive age (15 – 64) percentage of population (right axis)

Fig. 3-1-12 Trends in the number of employees per enterprise by enterprise scaleIn large enterprises and SMEs, the number of employees per company has been falling, and this is mainly thought to be due to the effects in the manufacturing industry

Source: Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.Notes: 1. Statistics based only on non-primary industries. 2. SMEs are defined as enterprises with 300 or less employees (100 persons or less in the wholesale and service

industries, and 50 persons or less in retail industry, and eating and drinking establishments) and those with capital of ¥300 million or less (¥100 million or less in the wholesale industry, and ¥50 million or less in the retail industry, eating and drinking establishments, and the service industry). Large enterprises are defined as those that are classed otherwise.

1,012.0 780.6

2,086.6

1,511.1

645.4 655.6

0

500

1,000

1,500

2,000

2,500

83 85 90 95 00 05 07(Fiscal year)

83 85 90 95 00 05 07(Fiscal year)

(Persons/enterprise)

Overall Manufacturing industry Non-manufacturing industries

12.4 10.9

19.4

17.6

10.49.7

0

5

10

15

20

25

(Persons/enterprise)[2] SMEs[1] Large enterprises


168

decreased significantly in manufacturing on the other. In SMEs, both in manufacturing and non-manufacturing industries, the number of employees per company fell slightly during the 1990s, but showed an increasing trend from the early to mid-2000s.

However, looking at the changes in employee numbers from fiscal 1996 to fiscal 2006 using the panel data from METI’s Basic Survey of Japanese Business Structure and Activities, it can be seen that in contrast to a decrease in employee numbers across this period in approximately 60%ofenterpriseswhichhad301ormoreemployeesinfiscal 1996, there was an increase in employee numbers in over half of the enterprises which had 50–100 employees in fiscal 1996. Similarly, in enterprises which had 50–100 employees in fiscal 1996, the rate of increase in average employee size over this ten year period was considerable. Based on these points, it can be said that the effects of sustaining and creating employment by SMEs were more significant than large enterprises 7)(Fig.3-1-13).

(2) Staff composition in SMEsNext is an analysis of the composition of employees

working in SMEs. Comparing the staff composition in SMEs and large enterprises using MIC’s Employment Status Survey, it can be seen that the number of employ-eesinSMEsasofOctober2007was20.81million,andthe number in large enterprises was 18.76 million (Fig. 3-1-14).Whenlookedatintermsoftheratiosofperma-nent and non-permanent employees, it can be seen that the ratio of permanent employees in SMEs was 62.9% as ofOctober2007,whileat63.5%,theratioofpermanentemployeesinlargeenterpriseswashigher.Lookingatthechanges from 2002 through to 2007, it is apparent that the rate of increase in non-permanent employees was higher in large enterprises.8)Lookingatthedistributionofper-manent employees across industry types, it can be seen that compared to large enterprises, the ratio of permanent employees in SMEs is higher in the construction industry, and lower in the information and communications, and finance and insurance industries on one hand, while there are no real differences in the manufacturing industry on theother(Fig.3-1-15).

7) Inenterpriseswithemployeesizesof101–300and301ormore,too,theratioshowingadecreaseinemployeesisgreater.However,theaverage number of employees is increasing, so this does not mean that there is an outward flow of employees from enterprises of large scale.

8) In small enterprises, the percentage of permanent employees grew from 2002 to 2007.

Fig. 3-1-13 Increase in the number of employees across a period of 10 years (FY1996 – FY2006)An increasing percentage of smaller enterprises have a rising number of employees compared to 10 years ago

2.1

50 – 100 persons 101 – 300 persons 301 persons or more

0.7 0.2

0

10

20

30

40

50

60

70

80

90

100

(%)Number of employees has increased (compared to FY1996) Number of employees has decreased No change

50.950.9

47.047.0

38.538.5

60.860.8

37.137.1

62.762.7

Size of enterprise in FY1996

Average number of employees in FY1996

Average number of employees in FY2006 (Difference)

Size of enterprise in FY1996

50–100 persons 78 persons 91 persons +13 persons

101–300 persons 174 persons 181 persons +7 persons

301 persons or more 1,308 persons 1,312 persons +4 persons

Total 479 persons 487 persons +8 persons

Source: Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.Notes: 1. Statistics based only on enterprises that answered the same survey in 1997 (FY1996 annual closing of accounts) and

2007 (FY2006 annual closing of accounts). 2. Employee size is calculated from the number of regular employees.


169

Section 1

Fig. 3-1-14 Type of employment in SMEs

Source: Recompiled from MIC, 2007 Employment Status Survey Notes: 1. Permanent employees refers to “regular staff and employees” in the above survey. 2. Part-time, arubaito (side-job) workers refers to “employees at companies and other organizations excluding

executives” who are classed as part-time workers or side-job workers. 3. Dispatched workers refers to “employees at companies and other organizations, excluding executives” who are

classed as “dispatched workers from temporary labor agency.” 4. Others refers to “employees at companies and other organizations, excluding executives” who are classed other than

those above. 5. Statistics based only on non-primary industries (excluding “government and other public organizations” and “other



0

500

1,000

1,500

2,000

2,500

2002 (17.2 million persons)


0

100

200

300

400

500

600

700

800

900

1,000

(Amongst SMEs)

(10,000 persons)

1.07 million persons (6.2%)

(10,000 persons)

Permanent employees Part-time, arubaito (side-job) workers Dispatch workers Other



360,000 persons (2.1%)

360,000 persons (2.1%)







760,000 persons (4.0%)

760,000 persons (4.0%)




540,000 persons (7.3%)



20,000 persons (0.3%)

20,000 persons (0.3%)




530,000 persons (7.3%)



40,000 persons (0.6%)

40,000 persons (0.6%)







200,000 persons (1.0%)

200,000 persons (1.0%)







450,000 persons (2.1%)

450,000 persons (2.1%)



Fig. 3-1-15 Distribution of permanent employees across industry types by employee size (2007)Compared to large enterprises, the percentage of permanent employees in SMEs is higher in the construction industry

Source: Recompiled from MIC, 2007 Employment Status Survey.Notes: 1. Permanent employees refers to “regular staff and employees” in the above survey. 2. Statistics based only on non-primary industries (excluding “government and other public organizations” and “other



4. Other includes “mining,” “electricity, gas, heat supply and water,” “real estate,” “education, learning support,” and “compound services.”

0% 100%

SMEs

Large enterprises

Construction Manufacturing Information and communications Transport Wholesaling Retailing

Finance and insurance Eating and drinking places, accommodations

Medical, healthcare, and welfare Services (n.e.c.) Other

18.118.1

4.54.5

28.828.8

30.230.2

3.53.5

8.88.8

9.19.1

7.37.3

8.38.3

7.17.1

3.33.3

3.03.0

4.04.0 13.113.1

11.611.6

2.82.8

4.54.5

1.01.0

1.01.0

8.18.1

9.89.8 12.212.2


170

If, among non-permanent employees, attention is focused on dispatched workers, we see that according to MIC’s Employment Status Survey, the number of such workers increased substantially from 0.72 million as of 2002, to 1.61 million as of 2007.9)Lookingatthisintermsofenterprisescale,as inFig.3-1-14, itcanbeseenthat0.45 million dispatched workers were employed in SMEs in 2007, which is double the number in 2002.10) In the present recession phase, a sense of surplus in dispatched workers is growing and in SMEs too, this has led to employment adjustment being carried out for dispatched workers(Fig.3-1-3above).

Regarding foreign workers in SMEs, according to MHLW’s Regarding the Notification Status of Foreign Workers’ Employment Status (as of end October 2008)(January 2009), the number of foreign workers employed in Japan was approximately 0.49 million at the end of October2008.Ofthisnumber,51.5%wereemployedincompanies with a employee size of 99 or less 11)(Fig.3-1-16).Lookedatintermsoftheirresidentstatus,approxi-mately 70% of foreign workers under the classification “Designated Activities” (which includes individuals pur-suing technical internships), are employed in companies with a employee size of 99 or less.12)

9) This is the total number of “dispatched workers from temporary labor agency” among “permanent employees.”10) Since Fig. 3-1-14 only calculates the total of non-primary industries excluding “government and other public organizations” and “other

corporate bodies,” there is a difference in the number of dispatched workers in these statistics (0.72 million as of 2002 and 1.61 million as of 2007)andthetotalofdispatchedworkersinlargeenterprisesandSMEsinFig.3-1-14(0.57millionasof2002and1.20millionasof2007).

11) This is the sum total of foreign workers employed in enterprises with an employee size of less than 50, and foreign workers employed in enterprises with an employee size of 50 – 99, calculated as a percentage of the overall number of foreign workers.

12) This is the sum total of foreign workers employed in enterprises with an employee size of less than 50, and foreign workers employed in enterprises with an employee size of 50 - 99 (in each residential status), calculated as a percentage of the overall number of foreign workers for each residential status.

Fig. 3-1-16 Number of foreign workers by resident status and size of establishment The number of foreign workers employed in Japan is approximately 490,000

Source: MHLW, Regarding the Notification Status of Foreign Worker Circumstances (as of end October 2008) (January 2009).Notes: 1. Resident status for specialist and technical fields correspond to professor, artist, religious activist, journalist, investor/

business manager, legal/accounting professional, medical professional, researcher, instructor, engineer, specialist in humanities/international services, intracompany transferee, entertainer, and skilled labor.

2. Designated activities refers to the sum of trainees, working holiday workers and those employed in the household by diplomats.

3. Activities outside of status include studying from overseas and attending school. 4. Resident status based on personal status corresponds to permanent residents, spouses etc. of Japanese nationals,

spouses or other relations of permanent residents, and long-term residents. 5. 99 persons or less refers to establishments in the above survey with a employee size of less than 50 persons and

50 – 99 persons. 6. 300 persons or more refer to establishments in the above survey with a employee size of 300 - 499 persons, 500 -

999 persons, and 1,000 persons or more.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

(Persons)

12,399 (15.0%)

10,499 (12.7%)

6,210 (2.8%)

486,398

84,878 94,769 82,931

223,820

99 persons or less

Total (Amongst those with resident status for specialist

and technical fields)

(Amongst designated activities)

(Amongst activities outside of status)

(Resident status based on personal status)

100 – 299 persons 300 persons or more Unclear

119,229 (24.5%)119,229 (24.5%)

94,685 (19.5%)94,685 (19.5%)

21,871 (4.5%)21,871 (4.5%)

250,613 (51.5%) 250,613 (51.5%)

27,912 (32.9%)27,912 (32.9%)16,085 (19.0%) 16,085 (19.0%)

39,221 (46.2%)39,221 (46.2%)

1,660 (2.0%) 1,602 (1.7%)10,989 (11.6%)

16,111 (17.0%)16,111 (17.0%)

66,067 (69.7%)66,067 (69.7%)22,658 (27.3%)22,658 (27.3%)

37,375 (45.1%)37,375 (45.1%)

51,990 (23.2%)51,990 (23.2%)

107,950 (48.2%) 107,950 (48.2%)

57,670 (25.8%)57,670 (25.8%)


171

Section 1

With regard to the foreign workers touched upon in the main text, a look will be taken at the current situation regarding foreign people being accepted into enterprises, not as foreign workers but as trainees (hereinafter referred to as “foreign trainees”). In 2007, there were 102,018 foreign trainees in Japan, of which 71,762 *1 were trainees who received support from the Japan Inter-national Training Cooperation Organization (JITCO)*2 to enter the country. Looking at the places that accepted these approximate 70,000 trainees, it can be seen that 59,344, or approximately 83%, were received by enterprises with a employee size of less than 300. Since it can be assumed that many of them transferred to pursue technical internships, it can be assumed that the Indus-trial Training Program and Technical Internship Program in Japan *3 is being actively employed by SMEs (Column Fig. 3-1-2 Figure). However, a number of problems have been highlighted including “illegally overstaying trainees”*4, “industrial accidents involving technical trainees”*5 and “illegal conduct relating to trainees and technical internships.”*6 It is important to arrange the environ-ment, so that good relationships can be built with local residents and company employees, as per Column Case 3-1-2.

Column Case 3-1-2 An SME with success in utilizing foreign (Chinese) trainees

Based in Omuta, Fukuoka Prefecture, with a workforce of 102 and capital of ¥80 million, Shingo Denzai Co., Ltd. was founded in 1972, and manufactures and sells traffic signal lighting and related equipment. With its high-level design and development capabilities, it has developed a number of products, including “anti-Western sun signal lighting” which prevents the false light-ing of signaling equipment due to sunlight from the West, and “restricted angle lighting,” that prevents signals from being misread by limiting their area of visual recognition, and contributed greatly to measures for preventing traffic accidents. It was selected as one of the 300 of Japan’s Vibrant Monodzukuri (Manufacturing) SMEs, 2006. The company’s market is not limited to Japan, having advanced into Asian regions such as China, Malaysia and Thailand.

When the company first expanded overseas, it established a joint venture with a local enter-prise in Taiwan. Thanks to the close relationship it formed with this company, Shingo Denzai was able to eventually entrust production to an enterprise in China. As a result, it became interested in accepting foreign trainees, and began doing so a few years ago.

A relative of the manager of the local enterprise, who was working at Shingo Denzai, acted as a go-between for the company and its trainees. They provided support for the trainees in learn-ing Japanese culture and customs, and as a result, the abilities of the trainees to communicate with Japanese people improved. This led to their being able to interact with local inhabitants by, for instance, participating in events in the region. When the company first began accepting train-ees, a number of challenges surfaced such as the relationship with local residents, and problems with waste disposal. However, thanks to the cooperation of the aforementioned relative of the proprietor of the local enterprise, the trainees’ interaction with local inhabitants deepened, and the issues were eventually resolved. By taking advantage of the experience it gained as a result, the company is now able to handle such problems internally.

Column 3-1-2 Foreign trainees

Column Fig. 3-1-2 Acceptance of foreign trainers in SMEs (2007)

Source: Japan International Training Cooperation Organization’s Technical Intern Training Program Status Report 2008 (September 2008).

30,041 persons (41.9%) accepted by SMEs with 20 – 299 employees

12,418 persons (17.3%) accepted by enterprises with 300 persons or more

29,303 (40.8%) accepted by enterprises with 19 persons or less

Foreign trainee immigrants in 2007: 102,018 persons

Other 30,256 persons (29.7%)

Other 30,256 persons (29.7%)

71,762 persons (70.3%) accepted by JITCO

71,762 persons (70.3%) accepted by JITCO


172

(3) Labor situation in SMEsNext will be a look at the working hours, wages, and

labor share in SMEs, concentrating on the results of recompiled data from MHLW’s Basic Survey on Wage Structure.

[1] Current situation regarding working hoursFirstly, looking at changes in the number of working

hours per month in terms of enterprise scale, and whether employees are permanent or non-permanent,13) it can be seen that in 2007, the average number of hours for permanent employees in SMEs was 184.3 hours (175.3

in large enterprises) while for non-permanent employees itwas113.3hours(116.2inlargeenterprises).Here,thenumber of working hours for permanent employees in SMEs clearly exceeds that of those in large enterprises (Fig.3-1-17).Ifthisisbrokendownintothemanufactur-ing and non-manufacturing industries, it can be seen that when enterprise scale, type of employment and type of work are the same, the working hours in the manufactur-ing industry are longer than in non-manufacturing, with the situation among non-permanent employees being particularly striking.14)

There was also the possibility that the dispatched workers at the company would be concerned about their own positions when foreign trainees were accepted. However, Shingo Denzai worked hard to alleviate their concerns by providing face-to-face reassurance through interviews and other means.

The environment in the company has been improved to facilitate the acceptance of foreign trainees through these efforts, and as such, it intends to continue accepting foreign trainees in the future.

*1 See the Japan International Training Cooperation Organization’s Technical Intern Training Pro-gram Status Report, JITCO White Paper 2008 (September 2008), Table 3-6. According to this table, in 2003, the number of foreign trainees who entered Japan was 64,817. This is an increase of over 1.5 times in a period of four years.

*2 This is a foundation which was established with the goal of effectively promoting the Industrial Training Program, in order to support the acceptance of foreign trainees in a number of differ-ent areas.

*3 The Technical Internship Program was established to enable foreign people who had obtained technical abilities above a certain level through training to get more practical experience with techniques and other means through employment-related experience. According to Ministry of Justice’s (MOJ) Immigration Control 2008 (October 2008), Table 14, the number of individuals which transferred from training to technical internship grew substantially from 20,822 in 2003, to 53,999 in 2007.

*4 According to Japan International Training Cooperation Organization’s Technical Intern Training Program Status Report, JITCO White Paper 2008 (September 2008), Table 3-26, as of January 1, 2008, the number of those who illegally remained in Japan was 149,785, of which 3,136 have a residential status of “Trainee.” However, compared to the other types of residential status, the ratio of those who illegally remained in Japan to the total number of registered foreign residents is low.

*5 According to Japan International Training Cooperation Organization’s Technical Intern Training Program Status Report, JITCO White Paper 2008 (September 2008), Table 3-46, the number of people enrolled as technical interns in 2006, involved in industrial accidents was 657.

*6 According to MOJ’s Regarding the Acknowledgement of “Illegal Conduct” in 2007 (May 2008), the number of cases of acknowledged illegal conduct relating to training and technical internships was 399 in 2005, 332 in 2006, and 562 in 2007 (among which, 178 were “violations of laws and rules of labor regulations,” 115 were “name lending,” 98 were “work outside of the prescribed hours for trainees,” 70 were “serious human rights and other infringements” and others).

13) In thischapter,peoplewhose typeofemploymentwasdescribed inMHLW’sBasic Survey on Wage Structure as “regular employees” or “permanent employees” and whose type of work is ordinary are classed as “permanent employees,” while people whose type of employment is described as other than “regular employees” or “permanent employees” and whose type of work is ordinary are classed as “non-permanent employees” (From 2005 onwards. In the surveys in 2004 and earlier, people whose type of employment was described as “regular” and whose type of work was ordinary were classed as “permanent employees,” while people whose type of employment was “regular” and whose type of work was part-time were classed as “non-permanent employees.”).

14) SeeAppendednote3-1-1.


173

Section 1

[2] Current situation regarding wagesNext, looking at the changes in average wages 15) in

terms of enterprise scale, and whether employees are permanent or non-permanent, it is clear that the average wage of permanent employees in SMEs in 2007 was ¥298,000 (¥383,000 in largeenterprises), and theaver-age wage of non-permanent employees was ¥121,000 (¥134,000 in large enterprises), showing a clear differ-ence in wages between permanent and non-permanent employees. Meanwhile, the gap between SMEs and large enterprises for permanent employees has steadily wid-ened(Fig.3-1-18).Ifbrokendownintothemanufacturingand non-manufacturing industries, the disparity between manufacturing in large enterprises and SMEs is large.16)

Looking at the changes in wages paid per hour ofwork, the average for SMEs in 2007 was ¥1,618 per hour for permanent employees (¥2,187 for large enterprises) and ¥1,067 for non-permanent employees (¥1,154 for large enterprises). These figures, although increased compared to 1990, clearly show that the gap compared to large enterprises (for permanent employees in particular)

grewthroughto2007(Fig.3-1-19).Ifbrokendownintothe manufacturing and non-manufacturing industries, the disparity between manufacturing in large enterprises and SMEs is large.17)

From these points it is clear that wages in SMEs has been at a lower level than those in large enterprises, both when looked at as the total amount, or in terms of hourly rates. However, looking at the distribution of the wages of permanent employees in 2007 in terms of enterprise scale, it becomes clear that some permanent employees in SMEs are receiving wages in excess of the average wage in large enterprises. Therefore, it does not mean that wages are necessarily low just because a company is an SME(Fig.3-1-20).

[3] Current situation regarding labor shareLookingatchangesinthelaborshare,(anindexwhich

shows how much of the value added of enterprises is distributed to employees, through allocation via wages etc.)18) it is evident that the share is higher in SMEs than largeenterprises(Fig.3-1-21).Thedifferencebetweenthe

Fig. 3-1-17 Trends in number of working hours for permanent and non-permanent employees by enterprise scaleThe number of working hours for permanent employees in SMEs exceeds that of those in large enterprises

Source: Recompiled from MHLW, Basic Survey on Wage Structure.Notes: 1. In the above survey for 2004 and earlier, calculations for permanent employees are based on those whose type

of employment was described as “regular” and whose type of work is ordinary. Calculations for “non-permanent employees” are based on those whose type of employment is described as “part-time” and whose type of work is ordinary.

2. From 2005 onwards, calculations for permanent employees are based on “regular employees and staff” or “permanent employees” and whose type of work is ordinary. Calculations for “non-permanent employees” are based on those whose type of employment is described as other than “regular employees and staff” or “permanent employees” and whose type of work is ordinary.

3. The number of working hours is the sum of scheduled hours and overtime hours. 4. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprises (99 or less

regular employees for the wholesales, service, and retail industries, and eating and drinking establishments). Large enterprises are defined as those that are classed otherwise.

184.0175.7 174.5 175.0 175.3

131.9

116.8 110.8

116.4 116.2

198.6186.0 182.3 183.5 184.3

138.3122.8 118.3

115.0 113.3

0

50

100

150

200

250

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

(Year)

(Hours/month)Large enterprises (permanent employees) Large enterprises (non-permanent employees)

SMEs (permanent employees) SMEs (non-permanent employees)

15) This is the “monthly contractual cash earnings.” It refers to the amount of wages paid in the month of June each year.16) SeeAppendednote3-1-2.17) SeeAppendednote3-1-3.18) In this section, this is defined as follows; “labor share” = “labor costs” / “gross value added.”


174

Fig. 3-1-18 Trends in wages for permanent and non-permanent employees by enterprise scaleThe wage difference between permanent employees from large enterprises and those from SMEs is gradually widening




3. Monthly contractual cash earnings refers to the amount of wages paid in the month of June each year. 4. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprises (99 or less


31.2

34.436.1

38.4 38.3

10.8 11.2

10.7

13.1 13.4

24.5

27.9 28.6 29.6 29.8

10.5 11.1

11.112.1 12.1

0

5

10

15

20

25

30

35

40

45

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07(Year)

(¥10,000/month) Large enterprises (permanent employees) Large enterprises (non-permanent employees)


Fig. 3-1-19 Trends in wages per hour of work for permanent and non-permanent employees by enterprise scaleThe amount of wages paid per hour of work has been gradually rising






1,694

1,9572,069

2,187

818956 970

1,1541,232

1,500 1,572 1,618

759900 941

1,067

0

500

1,000

1,500

2,000

2,500

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

(Year)

(Yen/hour) Large enterprises (permanent employees) Large enterprises (non-permanent employees)



175

Section 1

Fig. 3-1-20 Distribution of wages for permanent employees by enterprise scale (2007)19.5% of employees from SMEs receive higher wages than the average earned by those from large enterprises

Source: Recompiled from MHLW, 2007 Basic Survey on Wage Structure.Notes: 1. In the above survey, those whose type of employment is described as “regular employees and staff” or “permanent

employees” and whose type of work is ordinary are classed as “permanent employees.” 2. Percentile n shows, counting from the lowest rankings of the wage amount, the group of companies that are

positioned within the range of [low range (n-1)% or more to under n%] within the total ranking. 3. The amount of wages is the “fixed amount of total cash earnings paid.” It refers to the amount of wages paid in the

month of June each year. 4. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprises (99 or less


5. Please note that according to the definition of percentile, the vertical line extended from the point of intersection between the line parallel to the x-axis indicating the average wage at ¥383,000 and the line representing the distribution of wages for SMEs do not point to 80.5%.

0

10

20

30

40

50

60

70

80

0 10 20 30 40 50 60 70 80 90 100

(Percentile)

(¥10,000/month) Large enterprises SMEs

Average wage at large enterprises ¥383,000/month

Wages at a level lower than the average at large enterprises (¥383,000/month) 80.5%

Wages at a level higher than the average at large enterprises (¥383,000/month) 19.5%

Fig. 3-1-21 Trends in labor share by enterprise scaleThe labor shares for SMEs in both the manufacturing industry and non-manufacturing industries have stopped falling

Source: Recompiled from MOF, Financial Statements Statistics of Corporations by Industry.Notes: 1. Labor share = labor costs / gross value added (operating profit + labor cost + rent receivable from personal property

and real property + tax and dues + depreciation cost + special depreciation allowance) × 100. 2. Statistics based only on non-primary industries. 3. SMEs are defined as enterprises with 300 or less employees (100 persons or less in the wholesale and service

industries, and 50 persons or less in retail industry, and eating and drinking establishments) and those with capital of ¥300 million or less (¥100 million or less in the wholesale industry, and ¥50 million or less in the retail industry, eating and drinking establishments, and the service industry). Large enterprises are defined as those that are classed otherwise.

40

45

50

55

60

65

70

75

80

83 0500959085 07

(Fiscal year)

(%) SMEs (overall) SMEs (manufacturing) SMEs (non-manufacturing)

Large enterprises (overall) Large enterprises (manufacturing) Large enterprises (non-manufacturing)


176

manufacturing and non-manufacturing industries is not particularly significant in SMEs. In large enterprises too, although there used to be a large difference between the manufacturing and non-manufacturing industries, in recent years the disparity has shrunk. Meanwhile, if we look at the factors behind the increase or decrease of labor share, by classifying them into four types – “sales,” “rate of value added,” “labor costs per individual employee” and “num-ber of employees”19) – it appears that until fiscal 1995, all four of these factors increased in both large enterprises and SMEs, and that the labor share either rose or fell depending on the differences in their rates of increase.20) From 1995 onwards though, differences have appeared in the trends of large enterprises and SMEs. In large enterprises, a trend can be seen in that an “increase in number of employees” tends to push the labor share up, and an “increase in sales” tends to push the labor share down.

It can be assumed that the reasons behind the “increase in number of employees” and “decrease in labor costs per individual employee” mainly in large enterprises are an

increase in the number of employees and a decrease in the ratio of permanent employees in large enterprises at the sametime,asseeninFig.3-1-14.

3. Human resource mobility with regard to SMEs

AccordingtoMHLW’sSurvey on Employment Trends, the turnover rate for full-time employees including per-manent employees 21)climbedto12.2%in2007(Fig.3-1-22). To SMEs, there is concern that the low retention rates could hinder company-specific knowledge and technical abilities obtained through training and education. Further-more, with the economic climate worsening as at present, and people who have lost their jobs due to employment adjustment having to search for new employment, the issue of whether or not their migration to reemployment is conducted smoothly is important. With regard to this kind of mobility in human resources, how the situation has developed in SMEs will now be examined.

Fig. 3-1-22 Trends in turnover rates for regular employees (excluding part-time workers) by enterprise scaleTurnover rates are higher amongst SMEs

Source: MHLW, Survey on Employment Trends.Notes: 1. Turnover rate = number of employees leaving / number of regular employees as of January 1 in the year in which the

survey was conducted (excluding part-time workers). 2. Enterprises with a total number of regular employees of 5 – 99 persons are classed as SMEs, and those with 100

or more persons are classed as large enterprises. The turnover rates have been obtained from establishments of individual enterprises.

3. Statistics relating to government and other organizations are included only in the “overall” figure.

Overall Large enterprises SMEs

12.212.9

13.4

12.1 11.7

12.812.1

11.6

15.316.2

15.414.7

15.4 15.815.0

13.413.514.2 14.2

13.3 13.113.8

13.1

12.2

0

2

4

6

8

10

12

14

16

18

00 01 02 03 04 05 06 07(Year)

(%)

19) When “labor costs per individual employee” and “number of employees” increase, the labor share also tends to increase, whereas when “sales” and “rate of value added” increase, the labor share tends to decrease.

20) SeeAppendednote3-1-4.21) This refers to “regular workers” excluding “part-time workers.”


177

Section 1

(1) Turnover ratesFig.3-1-23showstheratioofnewgraduateshiredas

permanent employees by enterprises in the past ten years who are still working in those enterprises today, in terms of enterprise scale, based on the SME Agency’s Survey on Personnel Management 22) (November 2008). Accord-ing to this figure, the proportion of enterprises where less than 10% of the new graduates hired in the last ten years remain, and enterprises where 10% or more to less than30%remain,increasesasthescaleoftheenterprisegets smaller in terms of employee size. However, the pro-portion of enterprises in which 90% or more graduates remain also increases as the employee size decreases. In this way, a polarizing trend can be seen among enterprises as they become smaller in terms of workforce, with both enterprises with high turnover rates and low turnover rates emerging.

Using MIC’s Employment Status Survey to look at the ratios of employees who want to continue with the job they are in at present and employees who want to change to another job, it can be seen that 11.8% of permanent employeesinlargeenterprises,and13.3%ofpermanent

employees in SMEs feel that they “want to change jobs.” Among non-permanent employees, the ratio in large enterprises is 19.8% and in SMEs is 17.9%. This shows a trend in that regardless of enterprise scale, it is the non-permanent employees who tend to “want to change jobs”(Fig.3-1-24).Lookingatthereasonscitedbytheseemployees for wanting to change job, the results are as per Fig. 3-1-25, with the most common reason given(other than by permanent employees of large enterprises) as “low income.”23) The most common reason given by permanent employees of large enterprises, “the time and physical burden is great” is also quite common in other groups. In addition, “because it is a temporary job” is a common reason among non-permanent employees.

To SMEs, efforts to ensure that capable personnel (who they have nurtured through education and training) do not leave, are important. Specifically, it is important for them to design favorable wage systems, and make efforts to enable employees to sense how interesting their work is and feel the desire to work. Such wage systems and the work that gives a sense of reward, will be looked at more closelyinSections3and4.

22) See Appended note 4.23) Forextrainformationnotincludedhere,seeAppendednote3-1-5.

Fig. 3-1-23 Ratio of new graduates hired as permanent employees by enterprises in the past ten years still working in those enterprises today

Source: SME Agency, Survey on Personnel Management (November 2008).Note: Excludes “no responses.”

31.831.8

19.919.9

10.610.6

9.09.0

5.95.9

14.314.3

10.010.0

9.69.6

9.09.0

4.34.3

16.216.2

28.528.5

26.926.9

33.733.7

35.935.9

11.111.1

16.716.7

28.628.6

28.828.8

33.033.0

26.526.5

24.924.9

24.324.3

19.419.4

21.021.0

0% 100%

20 persons or less

21 – 50 persons

51 – 100 persons

101 – 300 persons

301 persons or more

Less than 10% 10% or more to less than 30% 30% or more to less than 70%

70% or more to less than 90% 90% or more


178

Fig. 3-1-24 Intention to continue present job by enterprise scale (2007)Non-permanent employees have a stronger wish to change jobs than permanent employees

Source: Recompiled from MIC, 2007 Employment Status Survey.Notes: 1. Permanent employees refers to “regular staff and employees” in the above survey. 2. Non-permanent employees refer to “employees at companies and other organizations excluding executives” other

than “permanent employees.” 3. Statistics based only on non-primary industries (excluding “government and other organizations” and “other



5. Excludes unidentified data.

86.686.6 84.284.277.177.1 77.577.5

11.811.8 13.313.319.819.8 17.917.9

1.6 2.5 3.2 4.6

0

10

20

30

40

50

60

70

80

90

100

Large enterprises (permanent employees)

SMEs (permanent employees)

Large enterprises (non-permanent employees)

SMEs (non-permanent employees)

I want to continue with my present job and do other jobs that are different I want to change to another job

I want to stop working completely

(%)

Fig. 3-1-25 Reasons for wanting to change jobs by enterprise scale (2007)The main reasons cited for wanting to change jobs are “low income” and “the time and physical burden is great”

Large enterprises (permanent employees)

SMEs (permanent employees)

Large enterprises (non-permanent employees)

SMEs (non-permanent employees)

First The time and physical burden is great (29.6%) Low income (35.3%) Low income (29.9%) Low income (34.8%)

Second Low income (24.1%) The time and physical burden is great (22.4%)

Because it is a temporary job (21.6%)


Third Other (13.0%) Poor business performance and uncertain future (14.7%)

The time and physical burden is great (14.3%)


Source: Recompiled from MIC, 2007 Employment Status Survey.Notes: 1. Permanent employees refers to “regular staff and employees” in the above survey. 2. Non-permanent employees refers to “employees at companies and other organizations excluding executives” other

than “permanent employees.” 3. Statistics based only on non-primary industries (excluding “government and other organizations” and “other



5. Statistics based only on those who answered that they “want to change jobs.” 6. See Appended note 3-1-5 for details on other reasons.


179

Section 1

(2) The employment path for permanent employees in SMEs

While it is important for individual SMEs to prevent capable personnel from leaving, it is also important to acquire capable new personnel who are ready to work. For SMEs as a whole, what is the employment path like for permanent employees?

Fig.3-1-26showstheemploymentpathforpermanentemployees in SMEs in terms of enterprise scale based on a recompiled data from MIC’s Employment Status Survey. Fromthisitcanbeseenthatfromanemployeesizeof300or more, down to an employee size of from 10 to 19, as the enterprise scale gets smaller, the number of new gradu-ates 24) decreases, and mid-career recruitments increase. It may be said that there is a trend here in that permanent employees in SMEs tend to more often be mid-career

workers than graduates compared to large enterprises.Next is to look more closely at the circumstances

surrounding the movement of employment in relation to SMEs. Fig. 3-1-27 shows the situation regarding move-ment among “people who have quit a job in the last five years and are now working in another place of employ-ment.” From this figure, it can be seen that the most com-mon move is from being permanently employed in one SME, to being permanently employed in another SME. When looked at in terms of the five categories used in this figure, it can be seen that it is characteristic for movers to most commonly remain within the same category of employment. For example, if the employee was previously a “permanent employee in a large enterprise,” then their current employment is also as a “permanent employee in a large enterprise.” Similarly, looking at movement

Fig. 3-1-26 Employment path for permanent employees (by enterprise scale)


than “permanent employees.” 3. Regarding the previous job, enterprises with 299 or less employees (99 or less employees for those in the wholesale,

service, and retail industries, and eating and drinking establishments) are classed as SMEs, and those with 300 or more employees (100 or more employees for those in the wholesale, service, and retail industries, and eating and drinking establishments) are classed as large enterprises. Statistics regarding large enterprises and SMEs are based only on those in non-primary industries (excluding “government and other organizations” and “other corporate bodies”).

4. Statistics based only on those who are permanent employees for their current job.

70.670.6

52.852.8

45.945.9

41.741.7

41.541.5

47.347.3

10.310.3

12.312.3

11.311.3

10.210.2

9.39.3

8.58.5

9.39.3

19.919.9

25.725.7

28.128.1

28.528.5

22.822.8

2.72.7

3.23.2

3.03.0

3.13.1

3.33.3

2.92.9

2.22.2

4.54.5

5.75.7

6.86.8

6.86.8

6.56.5

5.05.0

7.47.4

8.48.4

10.110.1

10.510.5

12.012.0

0% 100%

300 persons or more

100 – 299 persons

50 – 99 persons

20 – 49 persons

10 – 19 persons

9 persons or less

No experience of changing jobs

Non-permanent employee at large enterprise for previous job

Permanent employee at large enterprises for previous job

Non-permanent employee at SME for previous job

Permanent employee at SME for previous job

Other for previous job

24) Here, employees with no previous work are referred to as “new graduates.” In the 2007 White Paper on Small and Medium Enterprises in Japan,Fig.3-3-40,asimilartrendcanbeseen,whereitstates“SMEsfrequentlyperformmid-careerrecruitmentofotherenterprises’regularlyemployed persons, while the larger an enterprise is, the greater its recruitment of new graduates.”


180

in terms of industry type and enterprise scale, it can be seen that the ratio of movement within the same industry is highest in the “manufacturing” and “wholesale and retail trade” industries in large enterprises, and in the “construction,” “manufacturing,” and “medical, health care and welfare” industries in SMEs. In the “information and communications” industry, the percentage of workers moving from large enterprises to SMEs is high compared to other industry types. However, generally the trend is for the percentage moving away from SMEs to another SMEtobehigher(Fig.3-1-28).Lookingatmovementindifferent types of occupations in terms of the enterprise scale and type of employment in the current post, regard-less of the type of employment, generally, the percentage staying within the same occupation is highest. A number

of other features can also be seen; in SMEs, the rate of movement in “production processing and labor operators” is high, while among non-permanent employees in large enterprises, the rate of movement by “clerical and related workers” is high. Generally speaking it is difficult for a change in labor quality to occur from the perspective of occupations. However, since close to half of individuals changing jobs changed their type of occupation, we can assume that in some, such a change in the quality of labor also arises from the perspective of “occupation” (Fig. 3-1-29).

With personnel becoming more mobile in this way, SMEs are expected to secure and train personnel through measures such as mid-career recruitment.

Fig. 3-1-27 Movement of employment in the past five yearsThe most common move is from being permanently employed in one SME, to being permanently employed in another SME

(Unit: %)

Previous job

Large enterprise (permanent employee)

SME (permanent employee)

Large enterprise (non-permanent

employee)

SME (non-permanent

employee)Other Total

Curr

ent j

ob

Large enterprise (permanent employee) 3.8 3.2 1.5 1.1 1.2 10.7

SME (permanent employee) 3.6 9.1 1.6 3.0 2.4 19.8

Large enterprise (non-permanent employee) 3.5 3.2 6.2 4.9 2.8 20.6

SME (non-permanent employee) 2.4 4.4 2.9 7.5 2.9 20.1

Other 5.4 6.8 3.2 4.9 8.5 28.8

Total 18.7 26.7 15.5 21.3 17.8 100.0


than “permanent employees.” 3. Regarding the current job, enterprises with 299 or less employees (99 or less for the wholesale and service industries,

and 49 or less for the retail industry, and eating and drinking establishments) are classed as SMEs. Enterprises with 300 or more employees (100 or more for the wholesale and service industries, and 50 or more for the retail industry, and eating and drinking establishments) are classed as large enterprises. Statistics regarding large enterprises and SMEs are based only on those in non-primary industries (excluding “government and other organizations” and “other corporate bodies”).

4. Regarding the previous job, enterprises with 299 or less employees (99 or less employees for those in the wholesale, service, and retail industries, and eating and drinking establishments) are classed as SMEs, and those with 300 or more employees (100 or more employees for those in the wholesale, service, and retail industries, and eating and drinking establishments) are classed as large enterprises. Statistics regarding large enterprises and SMEs are based only on those in non-primary industries (excluding “government and other organizations” and “other corporate bodies”).

5. Please note that statistical constraints for “current job” and “previous job” have meant that they each have different criterion for classifying large enterprises, SMEs, and others.

6. Statistics based only on workers who have changed jobs within the past five years. 7. Figures represent percentages of labor movement in each category based on total labor movement of 100.


181

Section 1

(3) The current mismatch in employment, and approaches for its resolution

As seen in subsection 1 of this chapter, a mismatch in employment is appearing due to the deteriorating employment picture, and it is important for us to act as a go-between for personnel, in order to resolve this mis-match as well as possible.

[1] A mismatch between industry typesFig.3-1-30looksatthecurrentsituationregardingthe

surplus or insufficiency of personnel in large enterprises and SMEs based on the Questionnaire Survey on the

Application of Human Resources in Enterprise Activi-ties (hereinafter Questionnaire Survey on Application of Human Resources)25) implemented in November 2008 by Mitsubishi UFJ Research and Consulting Co., Ltd.According to this figure, despite the increasing sense of surplus in personnel in the current recession, there is nev-ertheless the same number of SMEs continuing to feel a lack of personnel as that of large enterprises, and this will remain the same in the future (for the next three years). When looked at in terms of industry type, it can be seen that the sense of insufficiency is strongest in the “medi-cal, health care and welfare,” “living related and personal

Fig. 3-1-28 Movement of employment in the past five years by industry type and enterprise scale

Source: Recompiled from MIC, 2007 Employment Status Survey.Notes: 1. Regarding the industry type and enterprise scale of current job, enterprises with 299 or less employees (99 or less for

the wholesale and service industries, and 49 or less for the retail industry, and eating and drinking establishments) are classed as SMEs. Enterprises with 300 or more employees (100 or more for the wholesale and service industries, and 50 or more for the retail industry, and eating and drinking establishments) are classed as large enterprises. Statistics regarding large enterprises and SMEs are based only on those in non-primary industries (excluding “government and other organizations” and “other corporate bodies”).

2. Regarding the industry type and enterprise scale of previous job, enterprises with 299 or less employees (99 or less employees for those in the wholesale, service, and retail industries, and eating and drinking establishments) are classed as SMEs, and those with 300 or more employees (100 or more employees for those in the wholesale, service, and retail industries, and eating and drinking establishments) are classed as large enterprises. Statistics regarding large enterprises and SMEs are based only on those in non-primary industries (excluding “government and other organizations” and “other corporate bodies”).

3. Please note that statistical constraints for “industry type and enterprise scale of current job” and “industry type and enterprise scale of previous job” have meant that they each have different criterion for classifying large enterprises, SMEs, and other.

4. Statistics based only on “employees at companies and other organizations excluding executives” from large enterprises or SMEs who have experienced changing jobs within the past five years.

5. For each item, data regarding those who were not “employees at companies and other organizations excluding executives” from large enterprises or SMEs for their previous job have been included elsewhere, therefore the total does not correspond to 100.

80

60

40

20

0

20

40

60

80

Large enterprise SME

(Industry type and enterprise scale of current job)

Large enterprise – SME (right axis)

Different industry, large enterprise Different industry, SME Same industry, large enterprise Same industry, SME

(%)

-80

-60

-40

-20

0

20

40

60

80

(%)

Industry type and enterprise scale of previous job

Different industry – same industry (right axis)

Cons

truct

ion

Man

ufac

turin

g

Tran

spor

t

Who

lesa

le a

nd re

tail

trade

Real

est

ate

Eatin

g an

d dr

inki

ng p

lace

s, a

ccom

mod

atio

ns

Med

ical

, hea

lthca

re,

and

wel

fare

Serv

ices

(n.e

.c.)

Othe

r non

-prim

ary

indu

strie

s

Info

rmat

ion

and

com

mun

icat

ions

Cons

truct

ion

Man

ufac

turin

g

Tran

spor

t

Who

lesa

le a

nd re

tail

trade

Real

est

ate

Eatin

g an

d dr

inki

ng p

lace

s, a

ccom

mod

atio

ns

Med

ical

, hea

lthca

re,

and

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ices

(n.e

.c.)

Othe

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-prim

ary

indu

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s

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and

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ions

25) MitsubishiUFJResearchandConsultingCo.,Ltd.,Questionnaire Survey on the Application of Human Resources in Enterprise Activities (November2008).Numbersurveyed:30,000.Returnrate:18.4%.


182

Fig. 3-1-29 Movement of employment in the past five years by occupation type[1] Permanent employee in large enterprise for current job (Unit: %)

Previous occupationSpecialist

and technical worker

Clerical and related

worker

Sales worker

Service worker

Transport and communications

operator

Production processing and labor operator

Other, unidentified Total

Curr

ent o

ccup

atio

n

Specialist and technical worker 7.4 1.2 0.9 0.7 0.0 1.1 0.5 11.8

Clerical and related worker 1.8 11.5 4.4 1.5 0.3 2.0 1.2 22.7

Sales worker 1.2 3.9 13.3 2.5 0.2 3.4 1.5 26.0

Service worker 0.3 1.0 1.5 4.0 0.1 1.1 0.6 8.6

Transport and communications operator 0.1 0.2 0.8 0.3 1.7 1.6 0.5 5.3

Production processing and labor operator 1.0 1.3 3.4 1.5 0.9 12.3 1.4 21.8

Other, unidentified 0.2 0.5 0.6 0.3 0.3 0.8 1.2 3.8

Total 12.0 19.5 25.0 10.9 3.5 22.2 6.8 100.0

[2] Permanent employee in SME for current job (Unit: %)




worker

Sales worker

Service worker


operator



Curr

ent o

ccup

atio

n



Sales worker 0.6 2.0 7.2 1.2 0.3 2.4 0.9 14.6

Service worker 0.3 0.7 1.0 3.0 0.1 1.0 0.5 6.6




Total 9.4 18.1 17.6 8.9 6.3 32.9 6.8 100.0

[3] Non-permanent employee in large enterprise for current job (Unit: %)




worker

Sales worker

Service worker


operator



Curr

ent o

ccup

atio

n



Sales worker 0.9 3.6 6.6 2.7 0.1 2.8 0.9 17.5

Service worker 0.9 3.1 2.8 5.9 0.2 2.9 0.9 16.7




Total 5.7 27.8 18.8 15.3 1.9 24.1 6.3 100.0

[4] Non-permanent employee in SME for current job (Unit: %)




worker

Sales worker

Service worker


operator



Curr

ent o

ccup

atio

n



Sales worker 0.6 2.6 3.8 1.8 0.1 2.0 0.8 11.5

Service worker 0.9 2.8 2.7 6.3 0.1 3.3 1.1 17.2




Total 7.0 21.3 14.0 14.9 2.9 32.4 7.6 100.0


than “permanent employees.” 3. Enterprises with 299 or less employees (99 or less for the wholesale and service industries, and 49 or less for the


4. Statistics based only on non-primary industries (excluding “government and other organizations” and “other corporate bodies”).

5. Statistics based only on “employees at companies and other organizations excluding executives” from large enterprises or SMEs who have experienced changing jobs within the past five years.

6. Figures represent percentages of labor movement in each category based on total labor movement of 100.


183

Section 1

services, and services for amusement and hobbies” and “food and drink service” industries 26)(Fig.3-1-31).

So, by what means are SMEs that are lacking in per-sonnel thinking of hiring employees? According to Fig. 3-1-32,therearemanySMEswithinsufficientpersonnelconsidering securing personnel via “mid-career recruit-ment of experienced individuals,” “mid-career recruit-ment of inexperienced individuals” and “recruitment of new graduates.” Also, it is apparent that a large number of SMEs are thinking of hiring personnel by offering vacancies via “Hello Work.” The role played by Hello Work in the hiring of human resources by SMEs is clearly significant 27)(Fig.3-1-33).

Fig. 3-1-31 also shows that the sense of worker

insufficiency is becoming stronger in some industries, such as “medical, health care andwelfare.”Lookingatthe movement of SME employees “who have quit a job in the last five years and are now working in another place of employment” in these kinds of industries, it can be seen that although the ratio of movement within the same industry is high, there is no shortage of movement in from other industries 28) (Fig. 3-1-34). In order to respond tofactors such as this kind of movement between different industries, not only is intermediation for personnel impor-tant, but so too is an improvement of the environment to facilitate the acquisition of education and training to learn the skills that are necessary in the workplace desired by applicants.

Fig. 3-1-30 Current and future situation regarding surplus or insufficiency of personnel by enterprise scaleDespite the increasing sense of surplus in personnel, not a few SMEs also think that they are lacking in personnel

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on the Application of Human Resources in Enterprise Activities (November 2008).

Note: Excludes “no responses.”

6.56.5

3.93.9

2.42.4

3.33.3

39.839.8

28.628.6

29.729.7

29.029.0

38.438.4

52.552.5

53.153.1

52.852.8

14.414.4

13.713.7

13.613.6

13.613.6

0.90.9

1.31.3

1.11.1

1.21.2

Large enterprises

SMEs (non-manufacturing)

SMEs (manufacturing)

SMEs (overall)

3.33.3

4.14.1

1.81.8

3.23.2

22.322.3

21.021.0

15.715.7

19.019.0

52.152.1

57.657.6

52.352.3

55.655.6

14.914.9

14.914.9

24.024.0

18.318.3

7.47.4

2.42.4

6.26.2

3.93.9

Considerably insufficient Somewhat insufficient Cannot say either way Slight surplus Considerable surplus

[1] Over past three years [2] Future (over next three years)

100%0% 100%0%

26) When looked at in terms of whether the destination for supply of products and services is businesses or the consumer, the sense of insufficiency isstrongerinenterpriseswhichprovideproductsandservicesforconsumers(Appendednote3-1-6).

27) If one compares this to large enterprises, it is found that as well as “offering vacancies in Hello Work,” the ratio of large enterprises employing methods such as “using employment portal sites” and “creating a company website” is high. Such differences between large enterprises and SMEs can be thought of as stemming from differences in management resources.

28) Atpresent,thesametrendisseenregardlessofwhetheremployeesarepermanentornon-permanent(Appendednote3-1-7).


184

Fig. 3-1-32 How enterprises are thinking of recruiting or utilizing personnel to make up for the lack of personnelThere are many SMEs with insufficient personnel considering securing personnel via “mid-career recruitment of experienced individuals,” “mid-career recruitment of inexperienced individuals” and “recruitment of new graduates”


Notes: 1. Excludes “no responses.” 2. Statistics based only on enterprises that answered that the number of personnel in the future was “considerably

insufficient” or “somewhat insufficient.” 3. Due to multiple responses, the total exceeds 100.

81.8

36.4

81.8

43.6

23.618.2 14.5

25.5

5.514.5

33.125.5

31.7 28.3

70.2

25.0

11.44.9

9.2 6.0 3.1 2.70

10

20

30

40

50

60

70

80

90

100

Large enterprises SMEs(%)

Recr

uitm

ent o

f

new

gra

duat

es

Recr

uitm

ent o

f

youn

g wo

rker

sM

id-c

aree

r rec

ruitm

ent

of i

nexp

erien

ced

indi

vidua

lsM

id-c

aree

r rec

ruitm

ent

of e

xper

ience

d in

divid

uals

Recr

uitm

ent o

f

non

-regu

lar e

mpl

oyee

s

such

as pa

rt-tim

e wor

kers

Utiliz

ing

outs

ide

pers

onne

l

such

as d

ispat

ch w

orke

rsUt

ilizin

g fo

reig

n pe

rson

nel

Reor

gani

zing

exist

ing

regu

lar e

mpl

oyee

sUt

ilizin

g no

n-re

gular

em

ploy

ees a

s

regu

lar e

mpl

oyee

sUt

ilizin

g no

n-re

gular

em

ploy

ees a

s

non

-regu

lar e

mpl

oyee

sUt

ilizing

disp

atch

wor

kers

as r

egul

ar e

mpl

oyee

s

Fig. 3-1-31 Future prospects regarding insufficiency of personnel in SMEs by industry type (over next three years)The sense of insufficiency is strong in the “medical, health care and welfare,” and “living related and personal services, and services for amusement and hobbies” categories



6.66.6

3.73.7

22.922.9

4.04.0

5.45.4

4.04.0

4.74.7

2.7

1.211.811.8

5.55.5

1.83.63.6

14.214.2

23.923.9

24.324.3

37.537.5

36.036.0

33.933.9

32.032.0

22.322.3

21.121.1

22.122.1

16.416.4

16.716.7

21.821.8

15.715.7

20.420.4

61.761.7

59.659.6

45.745.7

37.537.5

50.050.0

56.056.0

57.357.3

49.349.3

57.357.3

63.463.4

57.657.6

55.555.5

52.352.3

55.655.6

13.713.7

11.111.1

5.75.7

12.512.5

10.010.0

10.710.7

8.08.0

10.710.7

28.228.2

15.915.9

16.716.7

13.913.9

16.416.4

24.024.0

17.417.4

3.83.8

1.7

1.412.512.5

4.04.0

5.05.0

1.4

2.0

2.3

0.96.26.2

3.03.0

0% 100%

Other

Services (n.e.c.)

Medical, health care and welfare

Education, learning support

Living related and personal services, and services for amusement and hobbies

Food and drink service

Accommodations

Specialist and technical services

Real estate, and goods rental and leasing

Retail

Wholesale

Transport

Information and communications

Manufacturing

Construction

Considerably insufficient Somewhat insufficient Can not say either way Slight surplus Considerable surplus

46.046.0


185

Section 1

Fig. 3-1-33 Methods enterprises are considering using for recruiting personnelA large number of SMEs are thinking of hiring personnel by offering vacancies via “Hello Work” and recruitment through relatives and acquaintances


Notes: 1. Excludes “no responses.” 2. Statistics based only on enterprises that answered that the number of personnel in the future was “considerably

insufficient” or “somewhat insufficient.” 3. Due to multiple responses, the total exceeds 100.

47.3

16.4

41.847.3

18.214.5

67.370.9

7.3

74.7

6.2

33.9

67.3

1.8

27.3

21.1

6.1

21.2

29.7

12.9

3.6

21.9

14.1

5.110

0

20

30

40

50

60

70

80

90

100 Large enterprises SMEs

(%)

Offer

ing va

canc

ies

via H

ello W

orkCo

llabo

ration

with

educ

ation

al ins

titutio

nsOr

ganiz

ed in

terns

hips

Colla

borat

ion w

ith ch

ambe

rs/

socie

ties o

f com

merce

and i

ndus

try, a

nd

assis

tance

orga

nizati

ons

Utiliz

ing pr

ivate

recru

itmen

t com

panie

sSe

nt job

-plac

emen

t ads

to ca

reer m

agaz

ines

and n

ewsp

apers

Distrib

uting

poste

rs an

d ads

distr

ibuted

in ne

wspap

ersCr

eatin

g pam

phlet

sCr

eatin

g a w

ebsit

eUt

ilizing

recru

itmen

t

porta

l site

sRe

cruitm

ent t

hrou

gh

relat

ives a

nd

acqu

aintan

ces Ot

her

Fig. 3-1-34 Industry types of previous jobs in which SME employees changed jobs within the past five years

Source: Recompiled from MIC, 2007 Employment Status Survey.Notes: 1. Employees refer to “employees at companies and other organizations excluding executives” in the above survey. 2. Enterprises with 299 or less employees (99 or less employees for those in the wholesale and service industries, and

49 or less employees for those in the retail industry, and eating and drinking establishments) are classed as SMEs. 3. Statistics based only on non-primary industries (excluding “government and other organizations” and “other

corporate bodies”). 4. Statistics based only on “employees at companies and other organizations excluding executives” for previous jobs

in the industries of “construction,” “manufacturing,” “information and communications,” “wholesale and retail trade,” “eating and drinking places, accommodations,” “medical, healthcare, and welfare,” and “services (n.e.c.)” (excluding “government and other organizations”).

5. Statistics based only on “employees at companies and other organizations excluding executives” from SMEs who have experienced changing jobs within the past five years.

6.26.2

1.4

2.72.7

2.62.6

15.315.3

8.98.9

9.49.4

10.310.3

2.82.8

1.2

1.1

31.931.9

17.517.5

15.615.6

20.420.4

14.014.0

7.07.0

5.45.4

31.231.2

4.34.3

3.23.2

40.940.9

3.63.6

1.8

23.423.4

7.07.0

10.810.8

15.215.2

24.524.5

19.519.5

20.820.8

19.919.9

0% 100%

Services (n.e.c.)

Medical, healthcare, and welfare

Eating and drinking places,

accommodations


Construction Manufacturing Information and communications Wholesale and retail trade

Eating and drinking places, accommodations


Services (n.e.c.) Other

Industry type of previous job

Indu

stry

type

of c

urre

nt jo

b


186

[2] A mismatch surrounding new graduatesNew graduates will now be considered. As seen in Fig.

3-1-10,therecontinuestobeamismatchbetweenSMEsand large enterprises with regard to university and gradu-ate school graduates. Even during the previous period of recession, the active opening rate in large enterprises did not exceed 1.0, while in SMEs it never fell as far as 1.0. Does this reflect the strength of the desire among students to join large enterprises?

According to a questionnaire survey conducted by NomuraResearchInstitute,Ltd.,29) which asked individu-als currently working about their intended destination of employment during their time as students, the percentage of respondents who said “I was not selective about the size of the enterprise” and “I had no particularly clear intentions” were high, both exceeding the ratio which responded “I wanted to be employed in a large enterprise” (Fig.3-1-35).Thisconfirmsthatwhenstudentsbegintothink about employment, the desire to work in a large enterprise is not particularly strong.

In addition, when asked to give the reason for respond-ing that they wanted to work in a large enterprise, the percentage of respondents who said “because of the sense of security as a place of employment (low risk of bankruptcy and other dangers)” was highest (Fig. 3-1-

36).However,sincetherehasbeenasuccessionofmajorbankruptcies, dispatch cuts and withdrawals of employ-ment offers, even in large enterprises in recent years, the situation is increasingly becoming one in which it cannot necessarily be said that they are fulfilling their role as a place of secure employment.

With this in mind, it is important to provide prospec-tive on new graduates with information relating to the current situation for personnel working in SMEs. Consid-ering this point of view, from Section 2, attention will be turned to the abovementioned current situation, looking also at factors such as wage levels in SMEs, and the sense of reward in work. In order to help young people under-stand the appeal of working in SMEs, it can be assumed that it is important to provide high quality information relating to individual SMEs, and to take advantage of METI’s Job Café, as well as explanatory meetings on finding employment held by bodies such as chambers/societies of commerce and industry and SME support organizations. It can also be assumed that it is neces-sary to increase opportunities for students to come into contact with SMEs through opportunities such as intern-ships. Section 2 will look more closely at collaboration with educational facilities in the form of internships and other opportunities.

Fig. 3-1-36 Reasons for wanting to work in a large enterpriseThe percentage of respondents citing “because of the sense of security as a place of employment (low risk of bankruptcy and other dangers)” as the reason for wanting to work in a large enterprise was the highest

Source: Nomura Research Institute, Ltd., Survey on Satisfaction with Work and Motivation (December 2008).

Note: Statistics based only on respondents who answered that they wanted to be employed in a large enterprise.

Beca

use

the

wage

s are

hig

h

Beca

use

of th

e se

nse

of

secu

rity a

s a p

lace

of

em

ploy

men

t (low

risk

of

ban

krup

tcy a

nd

oth

er d

ange

rs)

Beca

use

it ha

s

a h

igh

prof

ile in

socie

tyBe

caus

e I c

an g

et

invo

lved

in la

rge

proje

cts

Beca

use

I can

get

invo

lved

in a

varie

ty o

f pro

jects

Othe

r

25.2

44.7

15.0

8.65.8

0.605

101520253035404550(%)

Fig. 3-1-35 Intended destination of employment during time as studentsThe percentage of respondents citing “I was not selective about the size of the enterprise” and “I had no particularly clear intentions” are high

Source: Nomura Research Institute, Ltd., Survey on Satisfaction with Work and Motivation (December 2008).

Note: Individuals currently working were asked about their intended destination of employment during their time as students.

24.1

4.2

29.8

I wan

ted

to b

e e

mpl

oyed

in

a la

rge

ente

rpris

eI w

ante

d to

be

em

ploy

ed in

a S

ME

I was

not

selec

tive

abo

ut th

e siz

e of

the

ente

rpris

eI w

ante

d to

foun

d

a co

mpa

ny o

r

set u

p a

busin

ess

I wan

ted

to b

e em

ploy

ed

in a

gov

ernm

ent a

nd

oth

er p

ublic

offi

ces

I had

no

parti

cular

ly

clea

r int

entio

ns Othe

r

2.85.9

31.0

2.205

101520253035(%)

29) NomuraResearchInstitute,Ltd.,Survey on Satisfaction with Work and Motivation (December 2008). Internet questionnaire targeting employ-ees.Responsenumberis1,300.


187

Section 2

4. Efforts by SMEs to secure and train personnel

So far the employment trends in SMEs have been examined along with the facts relating to personnel work-ing in SMEs.

Due to the rapidly worsening economic climate, the sense of surplus employment in SMEs is mounting. However, a mismatch is also arising, with no shortage of SMEs continuing to feel a lack of personnel. With

a consideration of a future reduction in the size of the working-age population, in what way is it necessary for SMEs to act, to secure and develop personnel. Further, based on their medium- to long-term vision incorporating this question, how should SMEs respond amid the current worsening economic climate and employment picture? With this viewpoint in mind, the current situation and challenges in securing and developing personnel for SMEs will be looked at from the next section onwards.

1. Interaction between SMEs and educational institutions

(1) The current state of interactionFirst will be a look at how educational institutions

perceive the interaction between themselves and SMEs, including activities such as internships and the dis-patch of company staff to teach classes. According to NomuraResearchInstitute,Ltd.’sQuestionnaire Survey on Interaction between Educational Institutions and Businesses,30) the proportion of high schools, technical colleges and universities that consider interaction with SMEs to be necessary is higher than the proportion that consider interaction with large enterprises to be neces-sary, and this difference is particularly significant in the responses of high schools. Additionally, the responses of graduateschoolswasalmostthesame.Onecanseefromthis that educational institutions consider interaction with SMEs to be more necessary than interaction with large enterprises(Fig.3-2-1).

Next will be a look at exactly how SMEs are interact-ingwitheducationalinstitutions.Fig.3-2-2[1]showshowmuch effort educational institutions are putting into inter-acting with SMEs, with the results classified into specific types of interactions. According to the graph, although there were a large number of educational institutions that answered that they “hardly interact at all” for most types of activities, with regard to “internships at SMEs” and “invitation of SME employees as teachers” sections, a relatively large proportion of respondents said that they

were actively engaging in these interaction activities. Par-ticularly with regard to internships, 15.9% of educational institutions answered that they “very actively interact” withSMEs.Fig.3-2-2[2]showstheextentofinteractionwith large enterprises. The graph shows that educational institutions tend to carry out internships with SMEs more actively than they do with large enterprises, and in the other areas of interaction, responses regarding interaction with SMEs were comparable to those regarding interac-tion with large enterprises.

So, are current interactions between SMEs and edu-cational institutions different from their interactions in the past? Fig. 3-2-3 [1] shows educational institutions’opinions on how their interaction with SMEs has changed from 10 years ago. Although “hardly changed” was the most common response, there were many responses mentioning an increase in “internships at SMEs” and “invitation of employees as teachers,” and there were few educational institutions that said that the amount of inter-action had “decreased somewhat.” Fig. 3-2-3 [2] showsthe changes in interactions between educational institu-tions and large enterprises. Comparing these changes to the change in interactions with SMEs, in many areas the proportion of responses saying interaction with SMEs has increased was higher than the proportion with large enterprises. From the above statistics, one can see that the interaction between SMEs and educational institutions is being carried out actively, and that such interaction is more wide-ranging than it was 10 years ago.

Fig.3-2-4showswhetherornot theSMEs thateach

Section 2 Internships and other activities carried out in collaboration with educational organizations

The previous section offered an overview of SME employment trends and looked at discrepancies that have emerged in the employment market. It also mentioned the importance of collaborating with educational organizations through internships and other means in resolving these discrepancies, especially those relating to new graduates, by providing more opportunities for students to come into contact with SMEs.

There are many examples of SMEs cooperating with educational institutions to aid the institutions in their crucial role of training personnel. For example, there are engineers from SMEs visiting schools nationwide to instruct classes about scientific experiments and perform other educational tasks. This section will look at this and other ways in which SMEs are currently interacting with educational institutions, focusing particularly on internships.

30) Aquestionnairetargeting5,000educationalinstitutions,conductedinDecember2008(37.7%responserate).


188

1.6

0.9

4.2

0.8

0.90.9

4.0

4.24.2

2.8

100%0%

Interact very actively

Joint projects with SMEs (including business,

joint research, joint development

and others)

Internships at SMEs

Acceptance of SME employees (as students or auditing student)

Dispatch of teachers to SMEs as instructors

(such as training instructors)

Invitation of SME employees as teachers

Provision of courses by SMEs

(sponsored courses and others)

Other

Joint projects with large enterprises

(including business, joint research, joint

development and others)

Internships at large enterprises

Acceptance of employees of large enterprises

(as students or auditing student)

Dispatch of teachers to large enterprises as instructors


Invitation of employees of large enterprises as teachers

Provision of courses by large enterprises (sponsored

courses and others)

Other

Interact to a certain extent Hardly interact at allDo not interact a lot

[1] Interaction with SMEs [2] Interaction with large enterprises

1.3

2.42.4

5.2

0.8

1.71.7

3.2

3.93.9

3.2

100%0%

15.915.9

8.78.7

28.828.8

7.97.9

43.643.6

17.717.7

15.715.7

22.722.7

16.316.3

13.413.4

14.514.5

14.214.2

91.491.4

74.674.6

44.344.3

75.075.0

79.579.5

25.925.9

64.064.0

6.26.2

10.210.2

12.912.9

28.928.9

8.98.9

6.66.6

32.332.3

16.516.5

15.015.0

20.420.4

15.815.8

13.113.1

18.218.2

14.014.0

91.691.6

69.869.8

45.545.5

74.574.5

78.578.5

39.339.3

66.366.3

Fig. 3-2-2 Situation regarding educational institutions’ interaction with companiesInteraction is more active with SMEs for internships

Source: Nomura Research Institute, Ltd., Questionnaire Survey on Interaction between Educational Institutions and Businesses (December 2008).

Note: Blank responses not included.

Fig. 3-2-1 Necessity of collaboration with large enterprises and SMEs perceived by educational institutionsA higher percentage of high schools, technical colleges and universities consider interaction with SMEs to be more necessary than with large enterprises



50.9

67.0

92.597.5

78.981.7

73.1 71.0

1.6 2.16.2

28.0

18.8

5.0 2.5

17.2 15.818.6 21.4

9.06.3

2.50.0 0.7

2.8

12.17.8

0.0 0.0 2.3 1.84.8

0

10

20

30

40

50

60

70

80

90

100

(%)

Interaction with large enterprises

Interaction with SMEs

High schools



Technical colleges



Universities



Graduate schools

Necessary Neither Not necessary Not sure


189

Section 2

Fig. 3-2-3 Changes in educational institutions’ interactions with SMEsIn most of the categories, educational institutions’ interactions with SMEs have increased compared to 10 years ago



2.6

1.2

1.3

1.9

4.0

2.9

2.6

1.9

2.2

2.6

2.7

1.9

Increased greatly

[1] Changes in interaction with SMEs

Joint projects with SMEs (including business, joint research, joint


Internships at SMEs





Provision of courses by SMEs (sponsored courses

and others)

Other

Joint projects with large enterprises

(including business, joint research, joint


Internships at large enterprises

Acceptance of employees of large enterprises (as students

or auditing student)

Dispatch of teachers to large enterprises as instructors


Invitation of employees of large enterprises as teachers

Provision of courses by large enterprises (sponsored

courses and others)

Other

[2] Changes in interaction with large enterprises

Increased somewhat Hardly changed Decreased somewhat

3.4

1.1

1.6

4.2

1.9

4.7

4.0

3.1

2.2

2.5

3.3

2.9

2.6

2.1 2.3

6.86.8

22.122.1

6.26.2

21.821.8

6.96.9

27.127.1

14.814.8

93.293.2

86.286.2

69.569.5

89.789.7

92.192.1

48.048.0

77.177.1

8.68.6

6.66.6

17.117.1

11.611.6

21.021.0

6.36.3

24.824.8

15.415.4

91.891.8

81.881.8

70.270.2

90.190.1

90.590.5

55.255.2

77.877.8

100%0% 100%0%

Fig. 3-2-4 Locations of SMEs interacting with educational institutionsIn all categories, educational institutions primarily interact with SMEs in the same prefecture


Notes: 1. Blank responses not included. 2. Data for educational institutions that answered that they “very actively interact” or “interact to a certain extent” with SMEs.

100%0%

0.0Other

Provision of courses by SMEs (sponsored courses and others)





Internships at SMEs

Joint projects with SMEs (including business, joint research,

joint development and others)

SMEs mainly in the same prefecture SMEs mainly in different prefectures Not sure

87.987.9

77.677.6

85.785.7

72.872.8

74.874.8

92.992.9

82.182.1

12.112.1

13.713.7

9.69.6

12.212.2

10.910.9

4.54.5

10.710.7

8.78.7

4.74.7

15.015.0

14.314.3

2.62.6

7.27.2


190

educational institution primarily interacts with are based in the same prefecture as they are. In every area of inter-action, most of the educational institutions responded that they interact primarily with SMEs in the same prefecture. This reflects the fact that educational institutions interact actively with SMEs in their region to collaboratively train personnel and work on joint projects.

So what kind of results is this interaction between SMEsandeducationalinstitutionsproducing?Fig.3-2-5shows what educational institutions perceive as the results of their interaction with SMEs. Very few educational institutions said that there had been “little result,” and there was a significantly large number of responses to the effect that “students’ consciousness of occupations and employment has been heightened.” There were also many educational institutions that said that “students’ interest

in class content had increased,” and that “students’ under-standing of class content had increased.” So, it can be seen that SMEs and educational institutions are interact-ing with each other actively, and it is having a positive effect on students’ educations. However as seen earlier, there are also many educational institutions that are not actively interacting with SMEs. Next will be a look at the kind of problems SMEs and educational institutions perceive in their interaction with each other.

(2) Problems in interaction between SMEs and educational institutions

Fig.3-2-6showstheproblemsthateducationalinstitu-tions perceive in their interactions with SMEs. “Difficulty in finding an SME to interact with” was the most common response. Responses such as “SMEs’ lack of a framework

Fig. 3-2-5 Effects of interaction with SMEs perceived by educational institutionsA substantial proportion of educational institutions answered that their students’ consciousness of occupations and employment had been heightened


Notes: 1. Due to multiple responses, the total exceeds 100. 2. Data for educational institutions that answered that they “very actively interact” or “interact to a certain extent” with

SMEs.

23.628.9

84.7

7.915.8 14.4

1.8 1.50

10

20

30

40

50

60

70

80

90

(%)

Stud

ents

’ und

erst

andi

ng

of c

lass c

onte

nt a

t

scho

ol/de

partm

ent

incr

ease

d

Stud

ents

’ int

eres

t in

clas

s con

tent

at

scho

ol/de

partm

ent

incr

ease

dSt

uden

ts’ c

onsc

iousn

ess o

f

occ

upat

ions a

nd

em

ploy

men

t has

bee

n h

eight

ened

Stud

ents

bec

ame

mor

e in

tere

sted

in

wor

king

for S

MEs

Inte

ract

ion le

d to

inte

ract

ion w

ith o

ther

com

pani

es a

nd

the

netw

ork

expa

nded

Repu

tatio

n in

socie

ty

has

bee

n he

ight

ened

Little

effe

ct

Othe

r

Fig. 3-2-6 Possible issues expected by educational institutions for interaction with SMEsA large proportion of educational institutions answered that they have “difficulty in finding an SME to interact with”


Note: Due to multiple responses, the total exceeds 100.

50.3

30.3

15.7

46.7

3.76.7

0

10

20

30

40

50

60

(%)

Difficulty in finding an SME to interact with

SMEs do not see any need to engage

in interaction

SMEs’ lack of funds for interaction

SMEs’ lack of a framework for

interaction

Would rather interact with

large enterprises

Other


191

Section 2

for interaction,” and “SMEs do not see any need to engage in interaction” were also common.

Fig.3-2-7showstheproblemsthatSMEsperceiveintheir interactions with educational institutions. Approxi-mately 30% of SMEs responded that they “do not seethe need for interaction” as the most common response. Many SMEs also indicated that they do not have enough information and know-how, responding that they do not understand what such interaction entails and that they do not know how to engage in such interaction.

Also, using the findings of Nomura Research Institute, Ltd.’s Questionnaire Survey on Approaches to Human Resource Management,31) when looking at what kind of interaction SMEs and educational institutions would like to engage in, one can see that more SMEs than educational institutions are less enthusiastic about interacting (Fig. 3-2-8).InFig.3-2-5above,fewrespondedthat“studentsbecame more interested in working for SMEs” as a result of interaction, and the lack of benefit for SMEs in interact-ing with educational institutions is presumably the reason

Fig. 3-2-7 Issues for interaction with educational institutions perceived by SMEsA high percentage of SMEs do not see the need for interaction in the first place

17.4 16.8

10.6

3.9 2.9

11.8

29.6

12.2

1.00

5

10

15

20

25

30

35

(%)

Not s

ure

abou

t

wha

t to

inte

ract

on

(int

erac

tion

activ

ity)

Not s

ure

abou

t

how

to in

tera

ct

(met

hod

of in

tera

ction

)

Do n

ot k

now

wha

t kin

d of

par

tner

s the

re a

re

(int

erac

tion

partn

er)

Have

a p

oten

tial

par

tner

in m

ind

but

do

not k

now

how

to

app

roac

h th

emHa

ve a

pot

entia

l par

tner

in m

ind,

but

the

fram

ewor

k

for i

nter

actio

n

on

the

side

of th

e

edu

catio

nal in

stitu

tion

is in

suffi

cient

Have

a p

oten

tial p

artn

er

in m

ind,

but

the

com

pany

’s

own

fram

ewor

k

for i

nter

actio

n

is in

suffi

cient

Do n

ot se

e th

e ne

ed

for i

nter

actio

n

No is

sue/

barri

er in

par

ticul

ar

Othe

r

Source: Nomura Research Institute, Ltd., Questionnaire Survey on Approaches to Human Resource Management (December 2008).

Notes: 1. Due to multiple responses, the total exceeds 100. 2. Data for SMEs.

Fig. 3-2-8 Prospect of how SMEs and educational institutions would like to interactSMEs are less enthusiastic about interacting than educational institutions are

2.6

3.6

0.0

0.9

1.4

0.7

1.4

5.5

5.1

3.3

Will actively engage in interaction

Joint projects with educational institutions (including business, joint

research, joint development and others)

Acceptance of interns from educational institutions

Dispatch of SME employees to educational institutions

(as students or auditing student)

Acceptance of teachers to SMEs as instructors

(such as training instructors)Dispatch of SME

employees to educational institutions as teachers


Other

Joint projects with SMEs (including business, joint research,

joint development and others)

Internships at SMEs






Other

Will engage in interaction to a certain extent

Not planning too much interaction

Not planning interaction at all

[2] Educational institutions’ plans for interaction with SMEs[1] SMEs’ plans for interaction with educational institutions

7.0 7.0

10.7 10.7

14.4 14.4

13.5 13.5

24.1 24.1

18.8 18.8

42.2 42.2

47.2 47.2

46.3 46.3

47.2 47.2

43.9 43.9

40.1 40.1

41.5 41.5

54.4 54.4

44.9 44.9

41.6 41.6

37.7 37.7

41.3 41.3

30.3 30.3

34.6 34.6

14.6 14.6

19.1 19.1

8.0 8.0

9.4 9.4

36.8 36.8

17.6 17.6

37.9 37.9

48.9 48.9

24.2 24.2

21.4 21.4

40.3 40.3

27.8 27.8

32.6 32.6

26.9 26.9

20.5 20.5

33.7 33.7

28.7 28.7

14.4 14.4

25.0 25.0

61.2 61.2

20.6 20.6

11.6 11.6

34.1 34.1

40.5 40.5

8.5 8.5

29.6 29.6

100%0% 100%0%

Sources: Nomura Research Institute, Ltd., Questionnaire Survey on Interaction between Educational Institutions and Businesses (December 2008) and Questionnaire Survey on Approaches to Human Resource Management (December 2008).


31) Aquestionnairetargeting5000companies,conductedinDecember2008(11.3%responserate).


192

behind SMEs feeling little need to engage in interaction.However, as seen in the same graph, interaction

between SMEs and educational institutions had a positive effect on students’ education, and from the perspective of improving the training of personnel that will go on to sustain the nation, presumably supporting the interac-tion between SMEs and educational institutions by, for example, matching compatible SMEs and educational institutions that are interested in interacting, would be worthwhile. Supposedly, improving the personnel training that is provided by educational institutions will enhance the capabilities of those individuals, and con-sequently will lead to SMEs being able to procure more competent staff.

Fig. 3-2-9 shows the kind of personnel educationalinstitutions are trying to produce when considering the employment of students, and the kind of personnel SMEs would like educational institutions to produce. The proportion of SMEs and educational institutions that answered “personnel that are able to hit upon new ideas and propose solutions to problems” was roughly the same, but many SMEs mentioned a desire for “personnel that will assume a role in company management,” while many educational institutions mentioned “personnel that are able to competently carry out routine tasks.” This probably indicates that there is a gap between the kind of personnel demanded by SMEs and the kind of personnel that educational institutions are trying to produce.

With regard to the desire for “personnel that will assume a role in company management,” more educa-tional institutions are working to produce such graduates.

For example, the number of business schools in Japan has been increasing in recent years, but this issue prob-ably still needs more attention from education providers. Interaction between SMEs and educational institutions deepens their understanding of each other, and provides an opportunity for them to reexamine the roles they each play in society. These points perhaps also underline the importance of proactively supporting interaction between SMEs and educational institutions.

2. The present state of SME internships and related issues

(1) The present state of SME internshipsUp to now the focus has been on the general state of

and general issues relating to interactions between SMEs andeducationalinstitutions.AsseenearlierinFig.3-2-8,the type of interactions that both SMEs and educational institutions are most enthusiastic about are internships. So here the focus will turn to SME internships, and look in detail at the present state of internship programs and issues related to this.

According to MEXT’s Survey on Internship Implemen-tation, implementation of internship programs is increas-ing in all educational levels from technical colleges up to graduateschools(Fig.3-2-10).

Next will be a look at the length of internship imple-mentationperiods.Fig.3-2-11[1]showsthedistributionof the most common SME internship implementation periods of each education institution. According to the graph,“3days”wasthemostcommonanswer,followed

An SME procuring personnel by interacting with universities3-2-1Aida Engineering Co., Ltd. of Mimasaka City,

Okayama Prefecture, with a workforce of 103 and capital of ¥60 million is an SME that specializes in manufacturing molding and tubing machines used in working metal sheets into curtain rails, pipes and other implements. In keeping with the company’s motto, “always keeping our technology and service one step ahead,” they develop new highly original products. For example, they developed their own original molding machine with greatly improved operability by incorporating into it image process-ing and information technology, and designing a touch panel from which shape formation condi-tions can be set, thereby allowing an inexperienced operator to learn how to use it in a short period of time, despite it being the kind of machine that normally requires a high degree of skill to operate. They developed this molding machine with coop-eration from a university that helped them with fundamental technological issues. When develop-ing new products, the company places emphasis on collaborating with research institutes such as

universities and other organizations, and collabo-rates with a large number of universities, not only with ones in their local area.

This kind of collaboration with universities is also helping the company to procure highly com-petent personnel. Many university graduates from local universities visit their professors to consult about jobs in the local area upon returning to their hometowns after temporarily leaving to find work in other areas. In order to receive job applications from such students, Aida Engineering utilizes its connections with those universities it has collabo-rated with on developing new products, and this has helped it to procure highly competent, mid-career personnel.

Collaborating with universities has helped the company not only in the development of new products, but has also helped it to procure highly competent personnel. The company intends to continue placing emphasis on this kind of collabo-ration with universities.

Case


193

Section 2

Fig. 3-2-9 Personnel that educational institutions are trying to produce and that SMEs wantA discrepancy can be seen in the type of personnel that educational institutions are trying to produce and the type that SMEs want

7.7

51.0

39.5

19.7

13.9

50.8

27.7

11.4

0.8

15.6

29.1

13.6

16.4

52.6

43.9

15.8

0 10 20 30 40 50 60

(%)

0102030405060

(%)

Other

Personnel that are able to competently carry out routine tasks

Technical talent in manufacturing

Specialists in information systems

Specialists in legal, accounting, and other fields

Personnel that are able to hit upon new ideas and propose solutions to problems

Personnel that will assume a role in company management

Prospective company managers

Personnel that educational institutions are trying to produce Personnel wanted by SMEs

Sources: Nomura Research Institute, Ltd., Questionnaire Survey on Interaction between Educational Institutions and Businesses (December 2008) and Questionnaire Survey on Approaches to Human Resource Management (December 2008).

Note: Due to multiple responses, the total exceeds 100.

Fig. 3-2-10 Changes in the implementation of internship programsThe number of educational institutions implementing internship programs is on an upward trend

Source: MEXT, Survey on Internship Implementation.

187 140

195 201 212 231 238 246 247 257

75

111 149

184 150 179 208 213 250 242

199

288

372

478

585

728

840

948

1,027

1,092

28 42 58 84 99 100 123

154 203 211

0

200

400

600

800

1,000

1,200

98 99 00 01 02 03 04 05 06 07

(Courses/Departments)

(Fiscal year)

Technical colleges Junior colleges Universities Graduate schools


194

by “1 week,” and then “2 weeks.” However, “1 week” was the implementation period considered ideal by the highest proportion of educational institutions in the survey, and the second most popular length was “2 weeks,” showing that there is a discrepancy between the actual length of internships and the length that educational institu-tions consider to be ideal. Probable reasons behind this include the fact that SMEs do not feel a strong need to accept interns, and the difficulty for SMEs in preparing an appropriate framework for accepting interns, among other reasons.

Fig. 3-2-12 shows the kinds of internship programsSMEs envision. “Getting interns to experience something close to actual work” was the most common answer

provided by survey respondents. Fig. 3-2-13 shows theanswers of people who have themselves experienced internships regarding their motivation in becoming interns. While there were many respondents that answered “to find out what it is like to work,” and “to experience doing the kind of work I want to do in the future,” there were few respondents that answered “to be hired at the host company.”

As one would expect from these kinds of motives, a majority of educational institutions said that “hardly any” graduates actually went to work after graduation for the companiestheyinternedat.Approximately30%ofedu-cational institutions said that “roughly 10%” of graduates actually went to work for the company they interned at

Fig. 3-2-11 Ideal length and actual length of internshipsThere is a huge discrepancy between what is considered the ideal length of an internship period and the actual length



12.4

25.0

28.5 28.2

2.5 1.6 1.63.2

12.8

30.1

32.8

4.7

10.6

5.8

0

5

10

15

20

25

30

35

40

Less

than

3 d

ays

3 da

ys

1 we

ek

2 we

eks

3 we

eks

1 m

onth

Mor

e th

an 1

mon

th

Less

than

3 d

ays

3 da

ys

1 we

ek

2 we

eks

3 we

eks

1 m

onth

Mor

e th

an 1

mon

th

Most common length Length that educational institutions consider ideal

15.2

33.5

25.2

22.3

1.2 0.7 1.9

4.6

17.2

35.8

26.6

3.2

7.9

4.8

0

5

10

15

20

25

30

35

40

[2] Length of internships at large enterprises[1] Length of internships at SMEs(%) (%)

Fig. 3-2-12 Types of internship programs envisioned by SMEsA large proportion of SMEs envision “getting interns to experience something close to actual work”



47.6

34.8

15.6

5.7 8.1

0.605

101520253035404550

Getting interns to experience something close to actual work

Support for employees’ work

Observe work at offices or plants

Specific task separate from normal work

Lecturing mainly in classroom

Other

(%)


195

Section 2

after graduation. From this, one can see that accepting interns is not leading directly to the procurement of new personnel(Fig.3-2-14).Thiskindofsituationisonerea-son for the lack of enthusiasm shown by SMEs regarding internships (compared to that of educational institutions) thatwasseeninFig.3-2-8.

(2) Issues relating to SME internshipsFig.3-2-15showstheissuesthatSMEsperceiveinthe

acceptance of interns. Many SMEs said that they have neither the personnel nor the time to deal with internships. Under these circumstances, a significant percentage of educational institutions said that “it is difficult to find a

companythatwillacceptinterns”(Fig.3-2-16).Inorderto help SMEs respond to this problem, encourage them to accept more interns and facilitate their hiring of person-nel, support for SMEs that lack sufficient management resources to help them to set up frameworks for accepting interns would perhaps be worthwhile.

By accepting interns, there are a number of SMEs that have greatly improved their recruiting activities by building important connections with educational institu-tions, and using those connections as leverage to carry out on-campus presentation meetings, and also using educational institutions as a hub from which to expand their networks.

Fig. 3-2-13 Reasons for participating in an internship program as a studentThe percentage of those who answered that they wanted to know what it was like to work or they wanted to experience work was high

Source: Nomura Research Institute, Ltd., Survey on Satisfaction with Work and Motivation (December 2008).Notes: 1. Due to multiple responses, the total exceeds 100. 2. Data for students who responded that they had participated in an internship program.

48.242.9

21.4

8.914.3 14.3

23.2

5.41.8

0

10

20

30

40

50

60

(%)

To fi

nd o

ut w

hat

it is

like

to w

ork

To e

xper

ience

doin

g

the

kind

of w

ork

I wa

nt to

do

in th

e fu

ture To le

arn

bus

ines

s man

ners

To b

e hi

red

at

the

host

com

pany

To le

arn

spec

ialize

d

info

rmat

ion o

r skil

ls

For s

choo

l cre

dits

To u

nder

stan

d

my a

ptitu

de fo

r wor

k

To in

tera

ct w

ith

bus

ines

s peo

ple

Othe

r

Fig. 3-2-14 Situation regarding recruitment of interns as employeesRegardless of the scale of the company, there were not many examples of interns being hired at host companies


Notes: 1. Data for educational institutions that answered that they “very actively interact” or “interact to a certain extent” with SMEs.

2. Blank responses not included.

53.653.6

51.551.5

30.430.4

30.230.2

10.210.2

11.611.6

2.92.9

3.93.9

1.7

2.0

0.6

0.5

0.7

0.4

0% 100%

Hardly any were employed by the host company

About 6-7 out of 10 About 8-9 out of 10 Most were employed by the host company

About 1 out of 10 About 2-3 out of 10 About 4-5 out of 10

Internship at SMEs

Internship at large enterprises


196

Fig. 3-2-15 Issues perceived by SMEs in implementing internship programsThe percentage of SMEs that responded that they lack the human and financial resources to implement internship programs was high

18.4

11.5 14.2

3.0

7.5

11.5

4.9 7.3

9.5

27.9

32.8

6.9

0.4 0

5

10

15

20

25

30

35

(%)

Diffi

culty

in

eva

luat

ing

the

edu

catio

nal e

ffect

Diffi

culty

for e

duca

tiona

l

inst

itutio

ns to

bui

ld in

to

the

curri

culu

mDi

fficu

lty to

link

to

clas

ses o

r cou

rses

at

edu

catio

nal in

stitu

tions

Arra

ngem

ents

with

edu

catio

nal in

stitu

tions

are

diff

icult

Low

inte

rest

on

the

part

of th

e st

uden

tsDi

fficu

lty in

givi

ng

adv

ance

gui

danc

e

to th

e st

uden

tsSe

tting

con

ditio

ns a

nd

pro

cedu

res s

uch

as fo

r

salar

ies a

nd in

sura

nce

are

com

plica

ted

Follo

w-up

with

edu

catio

nal in

stitu

tions

is d

ifficu

ltLa

ck o

f fin

ancia

l

reso

urce

s to

impl

emen

t

an

inte

rnsh

ip p

rogr

amLa

ck o

f tim

e to

impl

emen

t an

inte

rnsh

ip p

rogr

amLa

ck o

f hum

an re

sour

ces

to im

plem

ent a

n

inte

rnsh

ip p

rogr

am

No is

sues

Othe

r



Fig. 3-2-16 Issues perceived by educational institutions in implementing internship programsA substantial percentage of educational institutions say that arranging partners for internship programs is difficult

21.226.6

16.9

64.7

13.0

22.7

6.0

17.4

1.7

14.0 12.0

4.2

21.025.7

16.2

60.0

14.9

23.4

5.9

17.9

4.3

18.3 20.8

3.8

0

10

20

30

40

50

60

70

(%)Internship programs at large enterprises Internship programs at SMEs

Diffi

culty

in

eva

luat

ing

the

edu

catio

nal e

ffect

sDi

fficu

lty in

bui

ldin

g

it in

to th

e cu

rricu

lum

Diffi

culty

in lin

king

act

ivitie

s to

class

es o

r cou

rses

Arra

ngem

ents

for

par

tner

com

pani

es a

re d

ifficu

ltLo

w in

tere

st o

n th

e

par

t of t

he st

uden

tsDi

fficu

lty in

givi

ng

adv

ance

gui

danc

e to

the

stud

ents

Setti

ng c

ondi

tions

and

pro

cedu

res s

uch

as fo

r

salar

ies a

nd in

sura

nce

are

com

plica

ted

Follo

w-up

car

e to

the

partn

er c

ompa

ny is

diff

icult

Com

pani

es’ l

ack

of

fina

ncial

reso

urce

s to

impl

emen

t an

inte

rnsh

ip p

rogr

amCo

mpa

nies

’ lac

k of

tim

e to

impl

emen

t an

inte

rnsh

ip p

rogr

amCo

mpa

nies

’ lac

k of

hum

an re

sour

ces t

o

impl

emen

t an

inte

rnsh

ip p

rogr

am

No is

sues

Othe

r

4.3 3.0


Notes: 1. Due to multiple responses, the total exceeds 100. 2. Blank responses not included.


197

Section 3

The current state of interactions between SMEs and educational institutions, and issues relating to this which focus especially on internships have been the topics of discussion. Up till now, SMEs have tended to consider educational institutions such as universities as partners with whom they can work collaboratively on developing technologies, but SMEs need to also consider them as partners they can collaborate with on personnel-related matters, such as procuring personnel through internship programs, and sending staff to universities to receive pedagogical training.

As seen in this section, it is difficult to see the benefits for individual SMEs in interacting with educational insti-tutions, however such interaction can increase students’ interest in the idea of working for SMEs, and contributes to the fostering of personnel that may in the future end up as SME staff. It is for reasons such as these that it is highly important for all SMEs to collectively engage more actively in interaction with educational institutions and improved infrastructure in this regard will be neces-sary to facilitate this.

Section 3 The SME wage systemSection 1 overviewed the changes in Japan’s employment environment together with the current situation surrounding

SME employees, and observed the recent sluggish growth in SME wage levels, as well as the fact that although the average wage level among SMEs is below that of large enterprises, there are many SMEs that are attaining the higher average wage level than large enterprises.

What factors do SMEs consider when setting their wage levels? Moreover, what is an effective wage system that SMEs should set in order to incentivize their employees and draw out their capabilities? From this angle, this section will take a detailed look at the reality of SME wages.

1. Situation of SME wage levels

(1) Wage levels of large enterprises and SMEsThe situation of wages as of 2007 was outlined in

section 1, with the average wage in SMEs for permanent employees being ¥298,000, and ¥121,000 for non-perma-nent employees, while the same figures for large enter-prises were ¥383,000 and ¥134,000, respectively. Thegap in non-permanent employee wages is narrow, while a somewhat wide gap exists between large enterprises and SMEs for the average wage of permanent employees (Fig. 3-1-18insection1).

(2) Wage levels by age groupHow does the wage level in large enterprises and

SMEsdifferbyagegroup?Fig.3-3-1isarecompilationofMHLW’sBasic Survey on Wage Structure, calculating the median of permanent employee wage levels by age group for large enterprises and SMEs respectively. According to this figure, wages rise in both large enterprises and SMEs betweentheagegroupsof30-34yearsand50-54years,but the rate of the rise can be seen to be more gradual in SMEs compared to large enterprises. This implies that while wages in large corporations have a relatively strong characteristic of being seniority-based, SME wages have

An SME proactively accepting interns3-2-2Softem Co., Ltd. in Kawasaki City, Kanagawa

Prefecture, with a workforce of 103 and capital of ¥46.7 million specializes in software system development and network construction. The com-pany has a proactive internship program and was chosen as one of the Ministry of Economy, Trade, and Industry’s “1,400 Enterprises Creating Employ-ment” (Column 3-1-1).

A request from a university professor inspired the company to begin an internship program in 1996, and over the last two to three years the company has been accepting about 10 students annually as interns from universities and technical colleges all over Japan. The interns experience actual system development work, and this has benefits for both the company and the interns, as the company can make use of fresh ideas proposed by interns in their system development activities, and the interns get

the opportunity to gain real experience in actual system development work.

Through accepting interns in this way, the company is steadily strengthening its ties with uni-versities, technical colleges, and other educational institutions. The company believes that an impor-tant aspect of its internship program is the ability to construct a network with teachers and career counselors at educational institutions. Through the connections the company has made by way of its internship program, the company has been able to carry out exclusive on-campus orientation meet-ings at educational institutions throughout Japan, and these meetings have enabled the company to procure highly competent personnel from through-out the country, including students that have not participated in their internship program.

Case

Section 3 The SME wage system

198

a stronger characteristic of being performance-based rather than seniority-based.

Now the wage levels by age group between manufac-turesandnon-manufacturerswillbeanalyzed(Fig.3-3-2[1] and [2]).32) According to these figures, it is clear that the wage curve for large enterprise manufacturers is more tilted compared to large enterprise non-manufacturers and SMEs, and that when the tilts in wage curves of SME manufacturers and SME non-manufacturers are compared, there is no significant difference. From this, it can be assumed that while wages in large enterprise manufacturers tend to have a strong seniority-based characteristic, wages in SMEs tend to have a relatively stronger performance-based characteristic over a senior-ity-based characteristic, regardless of whether the SMEs are manufacturers or non-manufacturers.

2. Seniority-based wages and performance-based wages

(1) Wage systems which companies emphasizeIn the above, the situation of SME wage system design

was reviewed based on the Basic Survey on Wage Struc-ture, through a comparison with that of large enterprises. Next will be a look into the actual views among SMEs regarding seniority-based wages and performance-based wages. Fig. 3-3-3 shows the replies of large enterprises

and SMEs when asked whether they emphasize seniority-based wages or performance-based wages, based on the SME Agency’s Survey on Personnel Management (November 2008). According to these data, while the difference is slight, the larger the size of an enterprise on a number-of-employee basis, the higher the ratio of enterprises that replied that they “place relatively more emphasis on seniority-based wages.” When analyzed separately between manufacturers and non-manufactur-ers, the larger the size of an enterprise on a number-of-employee basis, the higher the percentage of enterprises that replied that they “place relatively more emphasis on seniority-based wages” for manufacturers, whereas for non-manufacturers, the percentage does not fluctuate significantly by company size measured by the number ofemployees(Fig.3-3-4[1]and[2]),whichisconsistentwith the fact that the tilt in wage curve for large enterprise manufacturerswasrelativelylargerinFig.3-3-2.

Indeed,accordingtoFig.3-3-4,therearemorecompa-nies that replied that they “place relatively more emphasis on performance-based wages” compared to those that replied that they “place relatively more emphasis on seniority-based wages” for companies of all employee sizes, and for both manufacturers and non-manufacturers. This implies that for both large enterprises and SMEs, there tends to be more emphasis placed on performance-based wages compared to seniority-based wages.

Fig. 3-3-1 Wage curve of permanent employeesThe rise in the wages of SME permanent employees is more moderate in comparison to that of large enterprise permanent employees

Source: Recompiled from MHLW, FY2007 Basic Survey on Wage Structure.Notes: 1. Permanent employees refers to those who are permanent employees whose type of employment is regular, and

whose type of work is ordinary. 2. Monthly contractual cash earnings refers to the amount of wages paid in the month of June each year. 3. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprise (99 or less

regular employees for the wholesale, service, and retail industries, and eating and drinking establishments). Large enterprises are defined as those that are classed otherwise.

22.5

27.2

31.837.6

42.8

45.3 46.1

44.2

31.3

25.9

17.320.0

23.927.5

30.532.0 32.0 31.7 30.7

26.021.418.6

0

5

10

15

20

25

30

35

40

45

50

18 to 19 years old

20 to 24 years old

25 to 29 years old

30 to 34 years old

35 to 39 years old

40 to 44 years old

45 to 49 years old

50 to 54 years old

55 to 59 years old

60 to 64 years old

65 years old or above

Mean value of large enterprises Mean value of SMEs(¥10,000)

32) EvencomparedagainstthelowestquartileandthethirdlowestquartileofSMEpermanentemployeewages,thereisastrongseniority-basedcharacteristicamonglargeenterprises(Appendednote3-3-1and3-3-2).


199

Section 3

Fig. 3-3-2 Wage curve of the permanent employees according to manufacturing industry/non-manufacturing industryThe incline of the wage curve is steeper for permanent employees of large enterprise manufacturers

Source: Recompiled from MHLW, FY2007 Basic Survey on Wage Structure.Notes: 1. Permanent employees refers to those who are permanent employees whose type of employment is regular and

whose type of work is ordinary. 2. Monthly contractual cash earnings refers to the amount that was paid for June in each year. 3. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprise (99 or less


(¥10,000) (¥10,000)

20.024.5

28.8

33.8

39.5

45.149.1 49.3 48.1

17.720.8

24.127.3

30.132.0 32.3 31.7 30.8

25.922.0

33.9

22.8

0

5

10

15

20

25

30

35

40

45

50

18 to

19

year

s20

to 2

4 ye

ars

25 to

29

year

s30

to 3

4 ye

ars

35 to

39

year

s40

to 4

4 ye

ars

45 to

49

year

s50

to 5

4 ye

ars

55 to

59

year

s60

to 6

4 ye

ars

65 ye

ars o

r abo

ve

18 to

19

year

s20

to 2

4 ye

ars

25 to

29

year

s30

to 3

4 ye

ars

35 to

39

year

s40

to 4

4 ye

ars

45 to

49

year

s50

to 5

4 ye

ars

55 to

59

year

s60

to 6

4 ye

ars

65 ye

ars o

r abo

ve

Mean value of large enterprises Mean value of SMEs

17.622.0

26.731.1

36.8

41.443.8 44.5

41.8

31.2

26.0

16.819.7

23.827.6

30.7 32.0 31.9 31.8 30.6

26.0

21.2

0

5

10

15

20

25

30

35

40

45

50

[1] Manufacturing industry [2] Non-manufacturing industry

Fig. 3-3-3 Wage systems emphasized by enterprises for permanent employeesThe larger the number of employees in an enterprise, the higher the inclination of enterprises to emphasize seniority-based wages

Source: SME Agency, Personnel Questionnaire Survey (November 2008).Note: Blank responses not included.

Up to 20

21-50

51-100

101-300

301 or more

More emphasis on seniority-based wages More emphasis on performance-based wages

35.3 35.3

37.6 37.6

38.5 38.5

38.0 38.0

37.8 37.8

64.7 64.7

62.4 62.4

61.5 61.5

62.0 62.0

62.2 62.2

100%0%


200

(2) The advantages and disadvantages of seniority-based wages

The above observed that the emphasis placed on seniority-based wages within the wage system differs by employee size and industry. What could be the cause for this? The generally accepted positive effects of wage systems with emphasis on seniority is thought to be the promotion of long term commitment, and thus attempting to accumulate knowledge and expertise inherent to that company. In fact, in the Survey on Personnel Manage-ment, when large enterprises and SMEs were asked about

the reasons for emphasizing the seniority-based wage system, the most popular reply was “to promote long term commitment, and thus attempt to accumulate knowledge and expertise” topping replies such as “difficulty of achieving the equal evaluation of employees, necessary for performance-based wages” and “unity and teamwork among employees is more important than the performance ofindividualemployees”byfar(Fig.3-3-5).

Fig. 3-3-6 describes how companies actually feelabout the influence on employees of wage systems with an emphasis on seniority. Regardless of the company size

Fig. 3-3-4 Wage systems emphasized by enterprises for permanent employees (for manufacturing and non-manufacturing industries)As for the manufacturing industry, the larger the employee number, the higher the percentage of enterprises that emphasize seniority-based wages

Up to 20

21-50

51-100

101-300

301 or more

Up to 20

21-50

51-100

101-300

301 or more


More emphasis on seniority-based wages More emphasis on performance-based wages

35.635.6

39.939.9

41.841.8

42.942.9

40.340.3

64.464.4

60.160.1

58.258.2

57.157.1

59.759.7

33.133.1

35.535.5

35.735.7

34.334.3

35.835.8

61.3 61.3

62.0 62.0

62.4 62.4

64.4 64.4

63.1 63.1

100%0% 100%0%

Source: SME Agency, Survey on Personnel Management (November 2008).Note: Blank responses not included.

Fig. 3-3-5 Reasons for emphasizing the seniority-based wage system for permanent employees in the wage systems of enterprisesRegardless of employee number, a high rate of enterprises replied “to promote long term commitment, and thus attempt to accumulate knowledge and expertise” as the reason

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Blank responses not included. 2. Statistics based only on enterprises that answered “relatively more emphasis on the seniority-based wage systems”

concerning the wage systems of permanent employees.

57.7

18.4 20.4

3.4

49.3

28.4

19.7

2.7

53.1

24.7 18.5

3.8

52.0

25.5

18.2

4.3

52.5

26.0

14.1 7.3

0

10

20

30

40

50

60

70

To promote long-term commitment, and thus attempt to accumulate

knowledge and expertise

Difficulty of achieving the equal evaluation of employees, necessary

for performance-based wages

Unity and teamwork among employees is more important than

the performance of individual employees

Other reasons

(%) Up to 20 21-50 51-100 101-300 301 or more


201

Section 3

measured by the number of employees, many replied that “the employee retention rate improved,” from which it seems that seniority-based wage systems in fact do pro-mote long term commitment to a certain extent.

Ontheotherhand,whatarethedisadvantagesofwagesystems with an emphasis on seniority? According to the Survey on Personnel Management, not many companies pointed out negative aspects of seniority-based wage sys-tems,whileinNomuraResearchInstitute,Ltd.’sSurvey on Satisfaction with Work and Motivation, employees were asked about the impact of the introduction of wage

systems with an emphasis on seniority, to which “no influence” was the most common answer, but “decreased motivation in work” came second, revealing the need to take into consideration that more than a few employees are not motivated by the fact that wages are decided based onseniority,notperformance(Fig.3-3-7).

(3) The advantages and disadvantages of performance-based wage systems

As for companies which place a relative emphasis on performance-based wages, when asked the reason, the

Fig. 3-3-6 Influence of wage systems with emphasis on seniority-based wages on employees (awareness of enterprises) Regardless of the number of employees in their enterprise, a high percentage of enterprises believe the employee retention rate has improved

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Blank responses not included. 2. Statistics based only on enterprises that answered “relatively more emphasis on the seniority-based wage systems”

concerning the wage systems of permanent employees.

13.3

0.70.02.3

6.0

1.3 0.5 0.84.8

0.8

27.7

0.8

20.8

29.1

5.93.9

0.0 0.34.2

32.0

0.7

20.3

32.0

4.14.5

7.5

0.0

30.8

0.4

18.8

31.6

5.6 5.6

0.0 0.4 0.4

31.8

0.7

20.2

29.2

5.73.8

1.3 0.6

5.7

1.3

22.3

0.6

24.8

33.8

0

5

10

15

20

25

30

35

40

Incr

ease

d

mot

ivatio

n in

wor

k

Decr

ease

d

mot

ivatio

n in

wor

k

Redu

ced

wor

king

hour

s

Incr

ease

d

wor

king

hour

s

Incr

ease

d c

o-op

erat

ion

am

ong

empl

oyee

s

Decr

ease

d c

o-op

erat

ion

am

ong

empl

oyee

s

Impr

oved

rete

ntion

rate

of

em

ploy

ees

Wor

sene

d

rete

ntion

rate

of e

mpl

oyee

s

No in

fluen

ce

Not s

ure

(%) Up to 20 21-50 51-100 101-300 301 or more

Fig. 3-3-7 Impact of wage systems with emphasis on seniority-based wages felt by employeesWhile “no impact” was the most common answer, a high percentage replied that “motivation towards work dropped”

Source: Nomura Research Institute, Ltd., Survey on Satisfaction/Motivation Towards Work (December 2008).Note: Statistics based only on permanent employees of enterprises that answered “relatively more emphasis on the seniority-

based wage systems” concerning the wage systems of permanent employees.

52.2

1.5 0.04.5

7.8

0.05.2 3.9

1.0

21.2

1.8

13.3

3.5 5.30.9 2.7 2.7 1.8

15.9

1.5

24.2

3.06.1 4.5

37.9

16.718.2

3.9 2.66.5

39.0

13.0

7.1

19.2

1.05.1 2.0

9.15.1

29.3

2.1

25.2

1.4 2.8 4.90.7

5.6 3.5

39.2

14.7

0

10

20

30

40

50

60

Incr

ease

d

mot

ivatio

n in

wor

k

Decr

ease

d

mot

ivatio

n in

wor

k

Redu

ced

wor

king

hour

s

Incr

ease

d

wor

king

hour

s

Incr

ease

d so

lidar

ity

am

ong

empl

oyee

s

Decr

ease

d so

lidar

ity

am

ong

empl

oyee

s

Impr

oved

em

ploy

ee

rete

ntion

rate

Wor

sene

d

rete

ntion

rate

of

em

ploy

ees

No in

fluen

ce

Not s

ure

Up to 20 21-50 51-100 101-300 301 or more(%)


202

most common reply was “to draw out the motivation from employees,” followed by “to raise the importance and fairness of personnel evaluation,” regardless of the company size measured by the number of employees (Fig. 3-3-8).Fig.3-3-9describeshowcompaniesactuallyfeelabout the influence on employees of wage systems with an emphasis on performance, where many replied that “increased motivation in work,” from which it seems that performance-based wage systems in fact do have a posi-tive effect on employee motivation.

On theotherhand,as for thedisadvantagesofwagesystems with an emphasis on performance, they are generally said to be the obsolescence of goal setting and the spreading of individualism, as well as the difficulty

in operating a system to evaluate performance, to raise some examples. What kind of views do SMEs actually have towards this? According to the Survey on Personnel Management, a large ratio of companies replied that it is “difficult to design a system to evaluate performance,” or it is “difficult to operate a system to evaluate performance.” When characteristics are observed based on classification by the number of employees, the ratio of companies that replied that it is “difficult to operate a system to evaluate performance” increases as the company size measured by the number of employees increases. It can be seen that the larger the company size measured by the number of employees, the more difficult it becomes to evaluate each individualemployee(Fig.3-3-10).

Fig. 3-3-8 Reasons for emphasizing the performance-based wage system for permanent employees in the wage systems of enterprisesRegardless of the number of employees, a high percentage of enterprises replied, “to draw out the motivation from employees” as the reason

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Blank responses not included. 2. Statistics based only on enterprises that answered “relatively more emphasis on the performance-based wage

systems” concerning the wage systems of permanent employees.

4.0 0.65.7

0.8 1.72.5 5.40.4 2.32.3 0.2

3.9 0.9 1.13.8 3.80.7 1.32.8 0.4 2.8 1.1 1.8

66.3

21.0

69.6

1.1

18.7

64.2

27.3

61.9

0.0

28.5

59.2

32.0

0

10

20

30

40

50

60

70

80Up to 20

To control standards of wages

To draw out the motivation from

employees

To control working hours

To not make disadvantageous

situations for mid-career hires

To raise the importance and

fairness of personnel evaluation

Other companies within the same industry have introduced the same system

Other reasons

21-50 51-100 101-300 301 or more(%)

Fig. 3-3-9 Influence of wage systems with emphasis on performance-based wages for employees (awareness of enterprises)Regardless of the number of employees, a high percentage of enterprises replied that the system improved motivation towards work

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Blank responses not included. 2. Statistics based only on enterprises that answered “relatively more emphasis on the performance-based wage

systems” concerning the wage systems of permanent employees.

9.3

27.4

54.6

1.0 1.8 2.1 3.4 1.0

9.2

1.0

13.3 12.7

55.0

1.0 0.6 1.6 3.1 1.47.2

1.6

12.6 16.1

57.3

0.7 0.4 2.0 2.0 0.96.9

0.0

20.4

56.6

1.3 1.1 1.1 1.1 1.85.3

0.7

12.3 18.9

55.8

0.4 0.0 1.8 0.7 0.04.2

0.7

9.1

0

10

20

30

40

50

60

70Up to 20

Increased motivation in work

Decreased motivation

in work

Reduced working hours

Increased working hours

Increased co-operation

among employees

Decreased co-operation

among employees

Improved retention rate of employees

Worsened retention rate of employees

No influence Not sure

21-50 51-100 101-300 301 or more(%)


203

Section 3

(4) Wage systems desired by employeesWe have confirmed that seniority-based wage systems

and performance-based wage systems both have their advantages and disadvantages, but how should an SME, from the standpoint of increasing the motivation and capa-bility of its employees, actually combine the elements of seniority-based and performance-based wage systems?

In order to assess this point, focus will be turned to how SME employees regard seniority-based and performance-based wage systems. Fig. 3-3-11 showswhich wage system company employees view as being preferable, a wage system with an emphasis on seniority or a wage system with an emphasis on performance, by company size measured by the number of employees. It was found that the smaller the company measured by the

number of employees, the higher the ratio of employees that chose the performance-based wage system.

Next is a look into the reasons why SME employees view each of the wage systems as preferable. As for the reasons why employees prefer a wage system with an emphasis on seniority, a large ratio of employees replied “because favorable treatment of long-term commitment promotes the education and training of employees as well as self-enlightenment among employees from a long term perspective”(Fig.3-3-12).Ontheotherhand,Fig.3-3-13describes the reasons why employees working in SMEs view a wage system with an emphasis on performance as preferable, and a large ratio of employees replied “because performance-linked compensation raises the motivation among employees.” As observed in Fig. 3-3-8 earlier,

Fig. 3-3-10 Disadvantages of wage systems with an emphasis on performance-based wages (awareness of enterprises)The larger the number of employees in an enterprise, the higher the percentage of enterprises that find it difficult to operate a system for performance evaluation


3.88.6

23.3

10.6

3.67.2

2.1

35.6

7.5 8.3

3.0 4.59.111.1

2.4

46.8

3.56.0

11.5

30.0

22.8

34.529.6

14.510.1

36.4

9.7

32.4

41.3

30.2

05

101520253035404550

Employees avoid work that do not easily

reveal results

Worsened retention rate of employees

Difficult to design a system to evaluate

performance

Difficult to operate a system to evaluate

performance

Deteriorated harmony among employees

No disadvantage

Up to 20 21-50 51-100 101-300 301 or more(%)

Fig. 3-3-11 Wage systems that are considered preferable among permanent employeesThe smaller the number of employees in an enterprise, the higher the percentage of permanent employees who find wage systems that emphasize performance preferable

Source: Nomura Research Institute, Ltd., Survey on Satisfaction with Work and Motivation (December 2008).Note: Statistics based only on permanent employees.

0% 100%

Up to 20

21-50

51-100

101-300

301 or more

Wage systems based on seniority Wage systems based on performance

39.739.7

46.746.7

39.239.2

44.044.0

51.751.7

60.360.3

53.353.3

60.860.8

56.056.0

48.348.3


204

companies also regard the increase in employee motiva-tion as the advantage of the performance-based wage system, showing a correspondence between the views of companies and employees on this point. Also, from Fig.3-3-13,itcanbeseenthatasomewhatlargenumberreplied “equal treatment for mid-career recruits and oth-ers whose years of continuous service may be short.”

These results, as mentioned earlier, can be assumed to be implying that since the wage systems in SMEs tend to have a relatively weak seniority-based characteristic compared to large enterprises, the chances of employees who have not been with the same company for long, such as mid-career hire employees and employees that have returned from child-rearing leave, being treated unfairly is low. Also, as seen in Section 1, there are many mid-career hire employees among permanent employees of SMEs.

(5) Towards the optimal combination of seniority-based and performance-based wage systems

The situation of wage systems in companies, as well as the impact wage systems have, and the issues which need to be addressed when implementing performance-based wage systems have been discussed. The seniority-based and performance-based wage systems both have their advantages and disadvantages, and employees have various viewpoints for both wage systems. When analyz-ing how the difference in the wage systems influences company profits (the current profit/loss on the profit and loss statement), there was no distinct trend in terms of companies which have an emphasis on a certain wage systemhavingbetterresults(Fig.3-3-14).

In order to create a wage system which brings out the most from their employees in terms of motivation and capability, it is crucial for the top management of SMEs

Fig. 3-3-12 Reasons why SME permanent employees view a wage system with an emphasis on seniority as preferableA high percentage of employees believe long-term employment promotes education, training and self-enlightenment among employees from a long-term perspective

Source: Nomura Research Institute, Ltd., Survey on Satisfaction with Work and Motivation (December 2008).Notes: 1. Statistics based only on people that replied that “wage systems with emphasis on seniority are preferable.” 2. Statistics based only on SME permanent employees.

34.029.2

14.2

20.1

2.5

0

5

10

15

20

25

30

35

40(%)

Favorable treatment of long-term commitment

promotes the education and training of employees as well as self-enlightenment from

a long term perspective

Favorable treatment of long-term employment increases the retention

rate of employees (controlling the number of those who leave or

change jobs)

Favorable treatment of long-term employment

increases harmony and solidarity

between the management and the employees

Big disadvantage of performance-based

wage systems

Others

Fig. 3-3-13 Reasons why SME permanent employees view a wage system with an emphasis on performance as preferableA high percentage of employees believe compensation based on performance increases motivation

Source: Nomura Research Institute, Ltd., Survey on Satisfaction with Work and Motivation (December 2008).Notes: 1. Statistics based only on people that replied that “wage systems with emphasis on performance are preferable.” 2. Statistics based only on SME permanent employees.

51.3

12.46.4

17.911.5

0.50

10

20

30

40

50

60

(%)

Performance-linked compensation raises the

motivation among employees

Companies start to evaluate the performance of employees thoroughly

Emphasis on performance contributes to the reduction

of working hours

Equal treatment for mid-career recruits

and others whose years of continuous service may be short

Big disadvantage of seniority-based wage systems

Others


205

Section 3

to maneuver the wage system so that the elements of both the seniority-based and performance-based wage systems are adequately blended together, taking into consideration

the company’s management strategy, and based on a firm understanding of the mindsets of employees as well as how they are dealing with their work.

Fig. 3-3-14 Relation between the wage systems which companies emphasize and company profits within the past three yearsThere is no distinct trend in terms of companies emphasizing a certain wage system having better results

0% 100%

More emphasis on performance-based wages

More emphasis on seniority-based wages

Big surplus Some surplus Breaking even Some deficit Big deficit

6.66.6

5.95.9

50.750.7

51.551.5

17.817.8

16.416.4

15.315.3

15.315.3

9.79.7

10.910.9

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Blank responses not included. 2. Statistics based only on SMEs.

An SME which operates a characteristic evaluation and compensation system, including 360 degree evaluation by superiors, subordinates and contemporaries

3-3-1

Live Revolution Co., Ltd., based in Minato City of Tokyo, with a workforce of 32 and capital of ¥254.95 million, was established in the year 2000, and is involved in content creation and consulting for cor-porate advertisements and PR using mobile media. Live Revolution has a high employee satisfaction rate, and the retention rate among new graduate hires which the company started in FY2006 is close to 100%. Its business results have also been grow-ing steadily. Live Revolution says the secret for this success is its original evaluation and compensation systems which it has introduced since FY2006.

This evaluation and compensation system was devised by Live Revolution following various trials and errors. In its early days following establish-ment, Live Revolution had a performance-based wage system, where it paid 10% of its monthly gross profits to its sales people as performance-based compensation, and added on a certain amount to the base wage two months ahead, based on the performance of each employee, only for its sales people. However, the creation of mobile advertisements based on client needs requires teamwork rather than individual perfor-mance, and collaboration between the sales side and the creation side is key. Therefore, under the initial performance-based wage system, teamwork did not function effectively. In order to overcome this situation, Live Revolution made a thorough analysis of the personnel systems of various

companies, and devised an original wage system where when deciding the wage amount, instead of directly linking the job category and rank to the wage amount, linking it to two axes; the actions taken by employees in accordance with the code of conduct which embodies the company’s “values,” as well as with the employees’ performance. For example, the evaluation standards in relation to actions taken in accordance with the code of con-duct are the 70 items listed in the credo (employee code of conduct) which Live Revolution created, and each item is evaluated out of 4 levels. On the other hand, there is only one item used to evaluate performance, and this is evaluated out of 15 levels. These evaluations are conducted on an absolute basis instead of a relative basis, each employee is evaluated by 6 employees (superiors, subordinates, contemporaries, etc.), and the evaluation results are calculated in points, with the wages being automatically decided based on the number of points. By using this evaluation system, the opera-tion costs borne by the company’s management have been cut drastically, and since the evaluators are not specified, relations among employees are not impaired.

Live Revolution explains that this original evalu-ation and compensation system helps heighten employee motivation and satisfaction, and thus makes possible the strong growth that the com-pany is seeing.

Case


206

3. Factors which impact wage levels

The previous topic compared various wage profiles such as seniority-based and performance-based wage systems, but here, what factors determine the high or low wage levels, as well as its growth will be analyzed with the help of statistical data and other sources.

(1) Relation between labor productivity and wage levels

[1] Correlation observed through statisticsSection 1 showed how SME wage levels have seen

sluggish growth in recent years. In order to analyze the reason for this, a look will be taken at the factors which have an effect on SME wage levels. Wage levels are thought to have a close relation with labor productivity, which is the amount of added value generated by each employee.Fig.3-3-15shows,througharecompilationofMETI’s Basic Survey of Japanese Business Structure and Activities (2006), the distribution of labor productivity levels (= added value / number of employees) of indi-vidual large enterprises and SMEs, and the wage amount per employee. According to this data, a clear tendency of companies with high labor productivity having a high wage amount per employee can be confirmed, for both the group of large enterprises and the group of SMEs.

Also,Fig.3-3-16,whichisarecompilationofMETI’s

Basic Survey of Japanese Business Structure and Activi-ties,similartoFig.3-3-15,showsthedistributionsofthegrowth rates of labor productivity and wage amount per employee over the years 2002 to 2006, for individual large enterprises or SMEs. According to this data, a clear tendency of companies with high growth rates for labor productivity levels having a high growth rate of wage amount per employee can be confirmed for both large enterprises and SMEs. As seen above, an evident correla-tion between labor productivity and wage levels can be observed.

[2] Views of the managementNext will be a look into whether or not the management

of companies actually place an emphasis on labor produc-tivity levels and its growth rates when considering wage levels and their growth rates for permanent employees. According to Fig. 3-3-17, the number the managementmost seriously takes into consideration is “standard of profit rate of company or its growth (or decline) amount,” followed by “standard and growth rates of overall labor productivity (value added per permanent employee)” when considering the wage levels and its growth rates for permanent employees. Based on the above, it can be said that labor productivity levels have a significant impact on wage levels.

Fig. 3-3-15 Relation between the labor productivity and earnings per employeeThere is a correlation between the amount of earnings per employee and labor productivity

Source: Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.Notes: 1. Concerning the enterprises that responded to the 2006 survey, of which had also responded to the 2002 survey, the

scatter plot was created by laying out labor productivity on the horizontal axis, and earnings per employee on the vertical axis.

2. Excludes enterprises that take a value of either the upper 0.5 percentile or above, or the lower 0.5 percentile or below, in earnings per employee or labor productivity.

3. Value added per employee refers to labor productivity. 4. The value added is “sales” – “cost of sales” – “sales expenses as well as general and administrative expenses” +

“depreciation expenses” + “total earnings amount” + “benefit expenses” + “movable assets/real estate rent fees” + “tax and dues”.

0

2

4

6

8

10

12

14

0 20 40 60 80 100

Labor productivity (¥1 million/person)

0

2

4

6

8

10

12

14

0 20 40 60 80 100

Labor productivity (¥1 million/person)

Earnings per employee (¥1 million/person)

Earnings per employee (¥1 million/person)

[2] Large enterprises[1] SMEs

y = 0.2713 x + 2.5094

R2 = 0.5079

y = 0.1901 x + 3.1539

R2 = 0.4101


207

Section 3

[3] Reasons why wage level growth is sluggishFocus will now be turned to how labor productivity,

which impacts wage levels, has been trending over the recentyears.Fig.3-3-18shows,througharecompilationofMOF’sFinancial Statements Statistics of Corporations by Industry, the trend in labor productivity (= added value amount / number of employees) for large enterprises and SMEs. According to this, labor productivity levels in SMEs fall below that of large enterprises for both manufacturers and non-manufacturers. Also, the labor productivity of large enterprises involved in manufactur-ing has been rising since the year 2001 onwards, while the growth rate of labor productivity for SMEs is low for both manufacturers and non-manufacturers.

Therefore, it can be assumed that the variance in labor productivity levels between large enterprises and SMEs is one of the main reasons for the gap in wage levels among permanent large enterprise employees and permanent SME employees. Also, the low growth rate in labor productivity can be cited as the background for sluggish growth in SME wage levels.

(2) Characteristics of SMEs with high wage levels[1] SME wage levels by industry

In the previous Fig. 3-3-15 it was observed that foreach individual SME, there is a tendency for companies with high labor productivity to have high wage levels. Since there is a difference in labor productivity levels

by industry, this brings about a difference in wage levels byindustryaswell.Fig.3-3-19showstheaveragewagelevels of permanent employees for large enterprises and SMEs by industry. According to this, among SMEs, wage levels are high for the finance and insurance industry, as well as for the information and communication industry.

Section 1 showed that 19.5% of permanent SME employees have a wage level higher than the average wage level of permanent large enterprise employees (previous Fig.3-1-20),buttowhichindustriesdotheseemployeesbelong?Fig.3-3-20showsthecompositionofindustriesto which permanent employees of SMEs with a higher wage level than the average wage level of permanent large enterprise employees belong to. Compared to the industry composition of all permanent employees of SMEs, the per-centage of information and communication, and finance andinsuranceishigher.Ontheotherhand,comparedtothe industry composition of all permanent employees of SMEs, the ratio of manufacturing, construction, wholesale and retail is lower, while the majority of permanent SME employees with a higher wage level than the average wage level of permanent large enterprise employees belong to these industries.

Based on the above, it can be concluded that while there is a difference in SME wage levels by industry, additionally, even within the same industry, there is a difference in wage levels based on the difference in labor productivity levels.

Fig. 3-3-16 Relation between the growth rate of labor productivity and the growth rate of earnings per employeeThere is a correlation between the growth rate of labor productivity and the growth rate of earnings per employee

Source: Recompiled from METI, Basic Survey of Japanese Business Structure and Activities.Notes: 1. Concerning the enterprises that had responded both in 2002 and 2006, the scatter plot was created by laying out the

growth rate of labor productivity of 2002-2006 on the horizontal axis, and the growth rate of earnings per employee of 2002-2006 on the vertical axis.

2. Excludes enterprises that take a value of either the upper 0.5 percentile or above, or the lower 0.5 percentile or below, in earnings per employee or labor productivity, in either years.

3. The value added for 2006 is “sales” – “cost of sales” – “sales expenses as well as general maintaining expenses” + “depreciation expenses” + “total earnings amount” + “benefit expenses” + “movable assets/real estate rent fees” + “tax and dues”.

4. The value added for 2002 is “sales” – “cost of sales” – “sales expenses as well as general maintaining expenses” + “total earnings amount” + “tax and dues” + “depreciation expenses” + “rent fees”.

0.00.20.40.60.81.01.21.41.61.82.0

0.0 0.5 1.0 1.5 2.0

Growth rate of labor productivity (%)

0.00.20.40.60.81.01.21.41.61.82.0

0.0 0.5 1.0 15 2.0

Growth rate of labor productivity (%)

Growth rate of earnings per employee (%)

Growth rate of earnings per employee (%)

[2] Large enterprises[1] SMEs

y = 0.5201x + 0.4672

R2 = 0.4533

y = 0.5667x + 0.4155

R2 = 0.4442


208

Fig. 3-3-17 Elements taken into consideration by enterprises when examining the wage levels and its growth rates for its permanent employeesRegardless of the number of employees, enterprises believe that the standard and growth rate of the profit rate, or the standard and growth rate of the labor productivity of the entire permanent employees, are important elements

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Blank responses not included. 2. Calculation was done by considering the first place as 3 points, the second place as 2 points, and the third place as

1 point.

0.2 1.4

31.1

0.1 1.3

34.6

0.1 1.3

15.9

0.1 1.10.1 1.4

28.0

32.5

9.5

15.5

34.6

10.615.0

28.9

13.315.5

28.4

35.9

14.1

27.6

37.1

17.9

13.1

0

5

10

15

20

25

30

35

40

Up to 20 21-50 51-100 101-300 301 or more(%)

Standard and growth rate of overall labor productivity

(value added per permanent employee)

Standard of profit rate of company or

its growth (or decline) amount

Wage standard of other companies in the industry

within Japan or their increase/decrease rate

Wage standard of foreign employees of overseas

factories, etc. or its increase/decrease rate

(in cases where there are factories, sales offices,

etc. overseas)

Employees’ satisfaction towards living

standard and wages

Others

Fig. 3-3-18 Transition of the amount of gross value added per employeeThe amount of gross value added per employee is greatly increasing in large enterprises within the manufacturing industry

Source: Recompiled from MOF, Financial Statements Statistics of Corporations by Industry.Notes: 1. The amount of gross value added is “sales + employee wages + director wages + benefit expenses + movable

assets/real estate rent fees + tax and dues + depreciation expenses + special depreciation expenses”. The number of employees is “the average number of employees within a period + the average number of directors within a period”.

2. Statistics based only on non-primary industries. 3. The amount of gross value added was shown in real terms based on FY2000. From FY1994 and beyond, the number

value derived by dividing the said fiscal year’s deflator by the FY2000 deflator is used. In FY1993 or in the previous years, the said fiscal year’s deflator was estimated by multiplying the FY1994 deflator/FY former 68SNA 1990 standard calculation to the said fiscal year’s former 68SNA 1990 standard calculation, then dividing it by the FY2000 deflator.

18.5

6.7

11.6

5.6

0

2

4

6

8

10

12

14

16

18

20

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Large enterprises within the manufacturing industry SMEs within the manufacturing industry

Large enterprises within the non-manufacturing industry(¥1 million)

(Fiscal year)

SMEs within the non-manufacturing industry


209

Section 3

Fig. 3-3-19 Average wages of permanent employees by industryAs for SMEs, the average wages are high in the finance and insurance, information and communications, and electricity, gas, heat supply and water industries

Source: Recompiled from MHLW, FY2007 Basic Survey on Wage Structure.Notes: 1. Permanent employees refers to regular staff and employees whose type of employment is regular, and whose type of

work is ordinary. 2. Monthly contractual cash earnings refers to the amount of wages paid in the month of June each year. 3. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprise (99 or less


38.3

42.143.6

40.5

47.3 47.1

38.2

41.9 42.1

29.831.9

46.7

30.7

35.2 36.0

29.8 29.8 30.729.4

35.4 36.5

30.4 29.4

39.6

31.9

25.3 26.029.1

27.2

30.5

0

5

10

15

20

25

30

35

40

45

50


(¥10,000)

All in

dust

ries

Min

ing

Cons

truct

ion

Man

ufac

turin

gEl

ectri

city,

gas,

heat

supp

ly an

d wa

ter

Info

rmat

ion a

nd

com

mun

icatio

ns

Tran

spor

tW

holes

ale a

nd re

tail t

rade

Finan

ce a

nd in

sura

nce

Real

esta

teEa

ting

and

drin

king

plac

es, a

ccom

mod

ation

sM

edica

l, he

althc

are

and

welf

are

Educ

ation

,

lear

ning

supp

ort

Com

poun

d se

rvice

sSe

rvice

(n.e

.c.)

Fig. 3-3-20 Industry composition of SME permanent employees with higher wages than the average wages of large enterprise employeesCompared to the composition of the survey sample, the rate of distribution is high within the industries of information and communications, finance and insurance, medical services and welfare, and services (that are not categorized in others)

Source: Recompiled from MHLW, FY2007 Basic Survey on Wage Structure.Notes: 1. Permanent employees refers to regular staff and employees whose type of employment is regular, and whose type of

work is ordinary. 2. Monthly contractual earnings refers to the amount of wages paid in the month of June each year. 3. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprise (99 or less


0.2

0.2

0.4

0.2 1.0

0.9

0.6

1.1

1.9

1.3

0.3

0.4

Industry composition of enterprises with higher wages

than the average wages of large enterprises

Industry composition of surveyed SMEs

Mining Information and communications

Real estate

Compound service Service (n.e.c.)

Eating and drinking establishments, accommodation

Medical, healthcare and welfare Education, learning support

Transport Wholesale and retail trade Finance and insurance

Construction Manufacturing

15.515.5

17.017.0

31.931.9

34.034.0

7.57.5

4.54.5

11.211.2

14.214.2

11.911.9

12.712.7

10.510.5

9.39.3

2.42.4 4.24.2

2.62.6

2.12.1

100%0%

Electricity, gas, heat supply and water


210

[2] SMEs that have set a high wage levelHow many SMEs are there that have set a higher

wage level for their permanent employees compared to other industries or competitors within the same industry? According to Fig. 3-3-21, from the fact that 12.6% ofcompanies with an employee size of 20 or less replied that they have set a wage level higher than that of other industries or competitors within the same industry for “most of the employees,” it can be seen that there is a certain proportion of companies that have set wages higher than that of other industries or competitors within

the same industry, among any company size measured by the number of employees.

The reasons why such companies have set wage levels higher than that of other industries or competitors within thesameindustrywillnowbeanalyzed.Fig.3-3-22showsthe replies from companies that have a higher wage level for permanent employees than that of other industries or competitors within the same industry when asked the rea-son for setting such wages. According to this, the larger the company size measured by the number of employees, the more replies there are such as “to attract many applicants,

Fig. 3-3-21 The percentage of enterprises that set wages high compared to other companies within the same industry or in other industries, in regards to the wage standards of permanent employeesConcerning the wage standards of permanent employees even within enterprises with small numbers of employees, there are enterprises that have set high wages compared to other companies within the same industry or in other industries


Up to 20

21-50

51-100

101-300

301 or more

Set for the majority of employees Set for a partial number of employees Not set Not sure

12.612.6

12.012.0

9.99.9

9.09.0

10.910.9

20.920.9

22.522.5

24.224.2

19.819.8

20.920.9

37.537.5

36.836.8

40.040.0

44.744.7

43.643.6

29.029.0

28.728.7

25.925.9

26.526.5

24.624.6

100%0%

Fig. 3-3-22 Reasons for setting higher wages compared to other companies within the same industry or in other industries, in regards to the wage standards of permanent employeesIn companies with up to 20 employees, the proportion that cite high labor productivity as a reason for setting higher wages compared to other companies in the same industry or in other industries is high

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Due to multiple responses, the total exceeds 100. 2. Statistics based only on enterprises that replied they set higher wage standards compared to other companies within

the same industries or in other industries in regards to the wage standards of permanent employees.

0.2

37.1

7.9

39.1

0.98.8

48.1

1.96.1

33.9

1.8

41.0

5.3

60.8

3.9 4.6

21.4 24.3

42.9

24.636.3

31.934.0 35.5

35.1

53.7

26.930.1 31.4

39.2

0

10

20

30

40

50

60

70Up to 20 21-50 51-100 101-300(%) 301 or more

To attract many applicants, and through interviews and other methods, hire

people with high capabilities through high wage levels

To prevent current employees to switch

jobs with higher wage standards

The labor productivity standards of the company’s

permanent employees is higher compared to other

companies within the same industry or in other industries

Strong negotiations of labor unions, etc.

To contribute to society by providing high living standards to employees

No specific reason


211

Section 3

and through interviews and other methods, hire people withhigh capability throughhighwage levels.”On theother hand, companies which replied “because the labor productivity standards of the company’s permanent employees is higher compared to other companies within the same industry or in other industries,” tended to be

concentrated among companies which are small in size measured by the number of employees.

To summarize, SMEs which have set a high wage level have done so not so much for attracting applicants, but more so to reflect their awareness of high labor productiv-ity level to the wage levels.

4. Towards the improvement of labor productivity

As discussed above, SMEs set their wage levels accord-ing to the labor productivity levels, and if the labor pro-ductivity level is high, SMEs that set a wage level higher than the average wage level of large enterprises actually exist in abundance, regardless of industry. Therefore, in order to raise SME wage levels, it is necessary to work on improving labor productivity. It is important for SMEs, with the objective of heightening labor productivity, to

abolish wasteful operational practices, raise production efficiency levels through the use of IT and other measures, and work on increasing added value through the develop-ment, supply and other processes of new products and services. Management and employees must join hands and work together in order to attain mutual understand-ing regarding the importance of raising labor productiv-ity, which has a correlation to wage levels, motivate the employees toward work and improve the capabilities to generate added value.

An SME that decides its wages through discussion involving the president and all other employees3-3-2

f-code. Inc. (f-code), based in Shinjuku City of Tokyo, with a workforce of 16 and capital of ¥7 million, established in 2006, has its main line of business in business development support centered around the Internet, as well as conducting market-ing support through web mobile solutions. f-code’s characteristic is, apart from its highly flexible envi-ronment, its evaluation and compensation scheme with a focus on “performance” and “the feeling of consent and satisfaction among employees.”

At f-code, the base wage is the same for its president and regular employees. Added on to this base wage is the “compensation based on project results” and “compensation considering manage-ment responsibilities.” The “compensation based on project results” is the allocation of a certain portion of the whole project amount, based on the project’s results as well as the varying responsibili-ties among each employee, which is added on to the base wage. The latter “compensation considering management responsibilities” is, although qualita-tive, determined by looking at set evaluation items and is added on to the base wage. The number of working hours is not included in these evaluation items. f-code allows its employees to control, based on each employee’s working style and their own responsibility, the number of working hours, the content of the work, the wage amount and other items. Out of the total wages paid to employees, the composition of the above two compensation items which are added on is extremely large, it can be said that the company’s evaluation system is focused on performance.

This kind of evaluation system with an empha-sis on performance reflects the intentions of Mr. Koji Nomura, the president of f-code, as he wants

the employees to have a mindset in which they feel responsibility towards their work, and each employee creates value. Also, in this evaluation and compensation system, there is a lot of emphasis on discussion among all employees, including the president, in order to heighten transparency and the feeling of consent and satisfaction among employees. To be specific, for almost all employees, f-code holds a quarterly meeting in which an evalu-ation of three months’ work is conducted in front of all employees, whose goals and wages for the next period are discussed in a democratic manner. In this meeting, the president’s compensation is also discussed in the same manner with the wages of normal employees. As a result, all employees are aware of the goals and wages of other employees, including the president, which places positive pres-sure on the employees.

By operating this evaluation and compensation scheme with an emphasis on performance, and a system in which the employees can accept the results with a feeling of consent, f-code’s employ-ees maintain a high level of motivation and perfor-mance, and are achieving positive results. There is a positive cycle of a feeling of consent and satisfac-tion being generated by the evaluation of perfor-mance. It raises the intention to deliver results, and acts as a motive to deliver the next performance results. Since the goals of the company and each individual are linked, the results generated help push up the company’s profits, and by returning this profit to employees, it lifts the motivation among employees. As a result, it has been made possible to raise wage levels for most employees to a level that bears comparison with the average wage levels of large enterprises.

Case

Section 4 Enhancement of employee motivation and capabilities

212


The previous section observed the situation regarding SME wage levels and wage systems such as seniority-based wage systems. Wages sustain SME employees’ livelihood, and are also an important factor in drawing out the will to work, but wage level is not the only component that brings out employee motivation. The sense of achievement and fulfillment after completing work is an important source of motivation for workers. What do SME employees actually feel about these rewards of work? How to improve the rewards of work is, for bringing out the employees’ motivation towards work, an important task from the perspective of the management of an SME. This section will analyze the current situation of rewards towards work, and will then observe what measures are necessary to raise the motivation and capabilities of SME employees.

1. Rewards from work for SME employees

(1) The situation of rewards from workFirst will be a look at “work satisfaction,” from the

CabinetOffice’sNational Survey on Lifestyle Preferences, in which the satisfaction levels regarding 60 items cover-ing all aspects of life are studied. When looking at Fig. 3-4-1,thepercentageofJapanesepeoplesatisfiedwiththework they do seems to be on a long-term declining trend. This figure shows the trend for all the people of Japan, but when looking specifically at employees working in SMEs, how are the rewards from work being felt?

Fig. 3-4-2 shows the results of Mitsubishi UFJResearchandConsultingCo.,Ltd.’sQuestionnaire Sur-vey on Worker-friendly Workplace Environments (here-inafter referred to as Questionnaire Survey on Workplace Environment),33) in which permanent employees in both large enterprises and SMEs were asked about whether

they were “satisfied with work.” According to this, the percentage of permanent SME employees that replied that they were “fully satisfied” and “very satisfied” are both slightly below the percentage of permanent large enterprise employees that replied that they were “fully satisfied” and “very satisfied.” Also, the total percentage of permanent SME employees that replied that they were “not very satisfied” and “barely satisfied,” which was 25.4%, was slightly above the total percentage of per-manent large enterprise employees that replied that they were “not very satisfied” and “barely satisfied,” which was24.4%.Onaverage,thenumberofpermanentSMEemployees that feel satisfied with their work is slightly below that of permanent large enterprise employees.

However, the difference is minimal, and while there are a considerable number of permanent SME employees that are satisfied with their work, there also is a consider-able number of permanent large enterprise employees that are not satisfied with their work, and it can be observed

Fig. 3-4-1 The percentage of people satisfied with their workThe percentage of people who are satisfied with their work is on a declining trend

Source: Cabinet Office, National Survey on Lifestyle Preferences (June 2006).Notes: 1. The rate of work satisfaction is the percentage of the total number of people that replied that they are “fully satisfied”

or “quite satisfied” in each of the main items. 2. The following are the contents of each of the items. “Work satisfaction”: there is work that is satisfying, or there is

work that is suitable for one’s self; “Easiness in taking holidays”: one can take many holidays throughout the year; “Increase in earnings”: there is a steady annual increase in earnings; “Steadiness in employment”: being able to work without the fear of losing one’s job.

30.5 31.931.0

20.1 16.1

16.316.6

28.4 29.227.9

20.6

22.4

25.5

21.7 22.223.7

22.119.1

14.4

5.56.2

33.034.4 33.9

27.125.5

22.9

14.012.3

14.8

21.7

21.4 18.3

22.4

18.3

15.714.1

10.77.9

17.5

0

5

10

15

20

25

30

35

40

(Year)78 81 84 87 90 93 96 99 02 05

Work satisfaction Easiness in taking holidays Increase in earnings Steadiness in employment

(%)

33) InternetquestionnaireconductedtowardsemployeesinDecember2008.Repliesfromapproximately3,000people.


213

Section 4

that SMEs are by no way falling behind large enterprises in providing satisfying work.34)

When turning toward the replies from permanent employees who have worked for the same company for 10 or more years, and how work satisfaction has changed compared to 10 years ago, out of the permanent SME employees who have been working for 10 years or longer, the ratio of those that replied that their work satisfaction is “significantly increasing” and “somewhat increasing” was 40%, which is slightly above the percentage of permanent large enterprise employees who have been working for 10 years or longer that replied that their work satisfaction is “significantly increasing” and “somewhat increasing,” whichwas35.4%(Fig.3-4-3).

As discussed above, there are a considerable number of SME employees that are satisfied with their work, as well as SME employees who have felt their work satisfac-tion increase over a long period of time during which they worked for the same SME, showing no big difference with large enterprise employees.

Next is to analyze where work satisfaction is born. Fig. 3-4-4 shows the replies from permanent employees ofboth large enterprises and SMEs when asked about the largest out of the various sources of work satisfaction, and according to this, the most common reply was “wage levels (wage increases),” followed by “internal evaluation towards one’s work” and a “sense of achievement after

completing work.”Wage levels and wage increases are actual rewards

towards work completed, and can be considered to be a result of internal evaluation, so it is natural that this reply was most common. However, as seen in the previous sec-tion, the average wage level for SMEs is lower than that of large enterprises, due to the gap in productivity as well as other factors, and it can be assumed that it is difficult for SMEs to raise wage levels regardless of how much the productivity has improved.

On the other hand, the third most common reply asthe source of work satisfaction was the “internal evalua-tion towards one’s work,” from which it can be reasoned that, for both large enterprises and SMEs, as long as the management show leadership, there is a lot of room for coming up with good ways to improve internal evalu-ation. Particularly, in the case of SMEs, the number of employees is small compared to large enterprises, and it can be assumed to be relatively easy to actively pro-mote communication between the management and the employees, as well as among employees. For SMEs, it can be deduced that devising a system in which the results of each employee’s work can be evaluated, and continu-ously working to conduct such evaluations, is effective in increasing satisfaction and bringing out the motivation towards work among employees.

Fig. 3-4-2 Rate of work satisfaction as a permanent employeeThe opportunities provided by SMEs in terms of satisfying work are in no way inferior to that of large enterprises

0% 100%

Large enterprises

SMEs

Fully satisfied Very satisfied Neither Not very satisfied Barely satisfied

6.66.6

5.95.9

38.238.2

35.535.5

30.830.8

33.233.2

16.216.2

15.215.2

8.28.2

10.210.2

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on Worker-friendly Workplace Environments (December 2008).

Notes: 1. Statistics based only on permanent employees. 2. Excludes “no responses.”

34) IntheCabinetOffice’sNational Survey on Lifestyle Preferences, the people of Japan were asked their satisfaction levels for “having work withrewardsorhavingworkwhichsuitsyou,”whereasinFig.3-4-3,MitsubishiUFJResearchandConsultingCo.,Ltd.’sQuestionnaire Survey on Worker-friendly Workplace Environments employees of both large enterprises and SMEs were separately asked about “having work withrewards”and“havingworkwhichsuitsyou.”Appendednote3-4-1liststherepliesregardingthesatisfactionlevelsamongpermanentemployeesoflargeenterprisesandSMEsfrom“havingworkwhichsuitsyou,”andsimilarlytoFig.3-4-2,(therepliesto“havingworkwithrewards”) on average the ratio of satisfied employees is slightly lower for permanent SME employees compared to permanent large enterprise employees, but the ratio of satisfied employees is not low, with 6.5% of permanent SME employees feeling “fully satisfied,” and 42.8% feeling “very satisfied.”


214

Fig. 3-4-3 The change in work satisfaction within a period of 10 years forpermanent employeesAs for the change in work satisfaction within a period of 10 years, permanent employees who work in SMEs are experiencing increased satisfaction compared to permanent employees who work in the large enterprises


Note: Statistics based only on permanent employees who have worked for the same company for 10 years or more.

0% 100%

Large enterprises

SMEs

Significantly increasing Somewhat increasing Hardly any change

Somewhat decreasing Significantly decreasing

8.18.1

8.78.7

27.327.3

31.331.3

30.830.8

32.232.2

22.222.2

15.815.8

11.611.6

12.012.0

Fig. 3-4-4 The source of work satisfaction for permanent employeesAs the source of work satisfaction, the most common reply was “wage levels (wage increases),” followed by a “sense of achievement after completing work” and “internal evaluation towards one’s work”


Note: Statistics based only on permanent employees.

1.33.61.8

8.86.1

17.7

11.9

5.54.6

38.6

1.22.91.5

8.26.7

18.1

10.15.3

2.4

43.6

05

101520253035404550

(%)

9.7

16.513

7.5

18.914.8

9.15.5 4.5

0.6

15.2

106.7

20.1

14.510.3 11.1

6.2 5.20.6

5101520253035404550

(%)[1] The biggest source of rewards from work

Large enterprises

[2] The second biggest source of rewards from work

SMEs

Wag

e lev

els

(wag

e in

crea

ses)

Posit

ion w

ithin

the

com

pany

(pro

mot

ion)

Satis

fact

ion o

f clie

nts

Inte

rnal

evalu

ation

towa

rds o

ne’s

work

Sens

e of

ach

ievem

ent

afte

r com

plet

ing

work

One’

s disc

retio

n ov

er w

ork

(the

fact

of g

iven

the

resp

onsib

ility o

ver w

ork)

Self-

reali

zatio

n an

d pe

rson

al

gro

wth

thro

ugh

work

Sens

e of

solid

arity

am

ong

coll

eagu

es th

roug

h wo

rkTh

e in

fluen

ce o

f

one

’s wo

rk o

n so

ciety

Othe

rs

Wag

e lev

els

(wag

e in

crea

ses)

Posit

ion w

ithin

the

com

pany

(pro

mot

ion)

Satis

fact

ion o

f clie

nts

Inte

rnal

evalu

ation

towa

rds o

ne’s

work

Sens

e of

ach

ievem

ent

afte

r com

plet

ing

work

One’

s disc

retio

n ov

er w

ork

(the

fact

of g

iven

the

resp

onsib

ility o

ver w

ork)

Self-

reali

zatio

n an

d pe

rson

al

gro

wth

thro

ugh

work

Sens

e of

solid

arity

am

ong

coll

eagu

es th

roug

h wo

rkTh

e in

fluen

ce o

f

one

’s wo

rk o

n so

ciety

Othe

rs


215

Section 4

An SME that brings out motivation from employees by evaluating their work3-4-1

Koken Ltd. (Koken), based in Chiyoda City of Tokyo, with a workforce of 218 and capital of ¥674.26 million was established in 1943 and is involved in the manufacture and sale of industrial safety and hygiene protection equipment (dust masks, chemical-cartridge respirators, air respira-tors, etc.).

Koken has introduced an original employee evaluation system which it calls “HOPES” (High-ideal Open-minded Personal affairs by various Evaluation System). In HOPES, tri-axis evaluation is conducted, from the perspectives of work results, management capabilities and professional exper-tise. The characteristic which sets HOPES apart from typical evaluation systems is that the three axes are evaluated independently from each other. Accord-ing to Koken, in a typical evaluation system, there would be two axes, and if an employee scores 100 according to one axis and 0 according to the other, his or her overall evaluation would most probably be 50, taking the average of the two. However, in HOPES, the focus would be placed on the out-standing axis scoring 100 points, and by evaluating the employee with an emphasis on that axis, thus aiming to develop the employee’s characteristics and capabilities. The background for this aim lies in Koken’s corporate philosophy that “people have multi-sided abilities, and the ability required by companies should not be measured using the aver-age. It is important to have employees fully utilize

the capabilities which they excel in.” By using a system like HOPES, even employees that have too strong a personality and lack cooperativeness, who would have been evaluated negatively under traditional employee evaluation systems, can be evaluated positively as long as they have capabili-ties in specific areas, which can then be reflected on their wages and other areas, and thus bring out their motivation.

In HOPES, the subjects of evaluation are mainly the actions taken by employees. Historically, Koken had sales quotas for its sales people, but have since abolished them. Koken evaluates its employees by the types of actions taken by them, rather than the actual results of their work, and especially evalu-ates highly various new ideas which the employees came up with in their daily operations, as well as proposals which point out areas in which Koken could improve. And, as long as the employee is being proactive, by doing such things as making challenges through new initiatives, even if the initiatives end up in failure, Koken has systems to evaluate these actions as “death on the battle-field.”

Through this evaluation system, Koken has suc-ceeded in creating an environment in which each employee can demonstrate their characteristics freely, and thus heightening the motivation among employees.

Case

(2) Relationship between work satisfaction and business performance

What is the relationship between the employees’ work satisfaction and SMEs’ business performance? Is the more satisfying the work at an SME, the better the busi-ness performance?

Fig. 3-4-5 is based on a survey towards permanentSME employees. It shows the relationship between the work satisfaction levels and the earnings of the SMEs they work in. Based on this figure, a clear correlation could not be seen, but the percentage of people working in SMEs that are seeing “some surplus” that answered “fully satisfied” and “very satisfied” was somewhat higher than the percentage of people who gave the same reply but are working in SMEs that are “some deficits” or “big deficits.” Either way, this figure was aimed to observe the

correlation and not the cause-and-effect pattern.Next is to observe what the SMEs whose employee

satisfaction increased over the past 10 years think are the effects of such increases, based on Nomura Research Institute,Ltd.’sQuestionnaire Survey on Approaches to Human Resource Management.AccordingtoFig.3-4-6,most SMEs replied that the “improvement in employee retention rate” was the biggest effect of increases in employee satisfaction. The second and third answers were “improvement in productivity” and “improvement in customersatisfaction,”respectively.Only1.4%ofSMEsanswered that there were “no particular effects.” It can be said then that the improvement of employee satisfaction such as improving work satisfaction has positive effects on the SMEs’ businesses, such as employee retention rate and productivity increases.


216

Fig. 3-4-5 Relation between the level of work satisfaction of permanent employees and the earnings of the SMEs they work inThe profits of enterprises with employees who are more satisfied with their work are more likely to post a surplus


Notes: 1. Statistics based only on permanent employees of SMEs. 2. Excludes “not sure.”

1.5

0% 100%

Barely satisfied

Not very satisfied

Neither

Very satisfied

Fully satisfied


4.84.8

7.07.0

7.17.1

6.36.3

28.828.8

34.234.2

37.837.8

44.144.1

42.242.2

20.220.2

27.227.2

25.225.2

27.627.6

32.832.8

17.317.3

23.423.4

23.823.8

16.616.6

9.49.4

28.828.8

8.28.2

11.711.7

4.64.6

9.49.4

Fig. 3-4-6 The effects of increased employee satisfaction on SMEsSome of the effects of increased employee satisfaction can be “improvement in employee retention rate,” “improvement in productivity” and “improvement in customer satisfaction”

Source: Nomura Research Institute, Ltd., Survey on Initiatives Concerning the Corporate Personnel Management (December 2008).Notes: 1. Blank responses not included. 2. Statistics based only on SMEs that replied “employee satisfaction increased over the past 10 years.”

25.5

21.4

2.8

9.7

22.1

6.2

10.3

1.4 0.70

5

10

15

20

25

30

(%)

Impr

ovem

ent i

n

em

ploy

ee re

tent

ion ra

te

Impr

ovem

ent

in p

rodu

ctivi

ty

Tech

nolog

y inn

ovat

ions

in p

rodu

cts

Impr

ovem

ent

in se

rvice

stan

dard

s

Impr

ovem

ent

in c

usto

mer

satis

fact

ion

Impr

ovem

ent

in c

ompa

ny re

puta

tion

Main

tain

ed a

nd se

cure

d

cap

able

pers

onne

l

No p

artic

ular

effe

cts

Othe

rs


217

Section 4

An SME working proactively to raise employee satisfaction3-4-2Bagzy, based in Kitakyushu City, Fukuoka Pref.

with a workforce of 100 and capital of ¥3 million, operates 7 beauty salons, most of which are located within the city. Bagzy was selected as one of the “Hi-service Japan 300” companies by METI. Based on the philosophy that “customer satisfaction is a reflection of employee satisfaction,” its manage-ment focuses on employee satisfaction. Efforts to satisfy its employees include (1) a straightforward wage system, (2) providing opportunities for employees to feel that they are taking part in managing the business, and (3) nurturing a corpo-rate culture where employees respect each other, remember to be thankful, and are service-minded.

[1] Bagzy’s wage system differs according to the employee’s seniority. Until the employees become stylists, they are positioned as “dependent family,” and receive fixed wages. Workers ranging from styl-ists to salon managers receive a commission based on their performance in addition to their base wage. The criterion for defining their commission is continuous positive feedback from customers. That is measured by repetition rates and new customer introduction rates.

[2] Employees are able to feel that they are tak-ing part in Bagzy’s management by writing ques-tions and suggestions emerged in doing their jobs on “Angel Cards,” which are read by the President, Mr. Kazuya Kubo, and quickly reflected in the actual management. Each salon also implements voluntary projects with themes related to corporate

philosophies such as “love and respect” and “make the customers happy.” Another important event is the annual “What If Everything Goes Well Meet-ing” (the definition of “everything going well” is a 20% sales increase compared to the previous fiscal year). In this meeting, employees present what they would like to do if everything goes well, and their suggestions are reflected in the mid-term business plan. By reflecting these activities in the business plan, the employees are provided with the oppor-tunity to feel their participation in management. In order to not overburden the employees, the power to influence everything other than the entire corporate management is delegated to them, but Mr. Kubo takes responsibility in everything that his employees do.

[3] In order to cultivate a corporate culture where employees respect each other and remember to be thankful, Bagzy feels it is important for employees to communicate with each other as well as with the management frequently. President Kubo is very close to his employees, and receives e-mails on his cell phone from employees almost everyday. There is much interaction among employees, as can be seen in sports events and yearend parties, as well as visits to orphanages and other institutions around Christmas time. As a result of such efforts, Bagzy’s employee turnover rates are very low for this industry, and sales have increased by 20% com-pared to the previous year.

Case

2. Communication between management and employees

(1) Situation of communication between management and employees

As discussed in (1) of previous subsection, among permanent SME employees, similar to permanent large enterprise employees, “the internal evaluation towards their work” was the third most common response as the most important source of their work satisfaction, and it was pointed out that setting a system for internal employee evaluation is effective in drawing out motiva-tion from employees.

When SMEs consider their internal evaluation systems, it is also important to assess how communication should be conducted between management and employees. Particularly with SMEs, which have a small number of employees, direct communication between the manage-ment and employees can be considered to be relatively easy compared to large enterprises.

Fig.3-4-7showstherepliesfromlargeenterprisesandSMEs when asked about the bottlenecks regarding active communication between the management and employees.

As expected, the ratio of companies that replied “it is difficult for the management to communicate actively with each employee due to the large number of employ-ees” grew as the company size measured by employees increased,andforcompanieswith301ormoreemployees,approximately half of the companies replied that this is the case. Moreover, the ratio of companies that replied that they see “no particular obstacles” in actively communicat-ing between the management and employees grew as the number of employees became smaller, and for companies with 20 or less employees, almost 70% of the companies replied that they see “no particular obstacles.” This clear correlation backs the assumption that it is easier for SMEs, due to the small number of employees, to have active com-munication between management and employees.

The actual measures taken in order to enhance active communication between management and employees willnowbeobserved.AccordingtoFig.3-4-8,thelarg-est percentage of companies “have occasions (morning meetings and other times) to explain the management strategy and business plan to employees” as a measure to realize active communication between management and employees. The smaller the company becomes in terms of


218

Fig. 3-4-7 Obstacles regarding the active communication between the management and employees from the perspective of enterprisesThe smaller the employee scale of the enterprise, the higher the percentage of enterprises that believe there are no specific problems


0.5

14.111.6

6.5

67.3

2.2

27.011.9

9.3

49.6

11.8

28.8

10.96.4

26.524.1

10.7

4.4

49.2

19.0

7.63.1

42.2

34.3

21.1

0

10

20

30

40

50

60

70

80Up to 20 21-50 51-100 101-300 301 or more(%)

It is difficult for the management to communicate actively with

each employee due to the large number of employees

It is difficult to make time given that employees are too busy

with their regular work

It is difficult to make time giventhat the management is too busy

with their regular work

The advantages of communicatingwith each other are small

No particular obstacles

Fig. 3-4-8 Efforts to realize active communication between management and employeesThe smaller a company’s number of employees, the higher the percentage of enterprises that set up occasions for direct meetings between the top management and the employees

7.5

35.1

3.7

31.8

40.1

8.9

12.5

34.6

75.7

17.3

60.6

44.6

23.6

17.0

65.3

30.6

14.8

27.7

70.4

38.0

11.5

40.6

29.537.5

8.6

73.6

26.422.1

42.1

5.4

0

10

20

30

40

50

60

70

80

Up to 20 21-50 51-100 101-300 301 or more

(%)

Man

ager

exp

laini

ng

the

man

agem

ent s

trate

gy a

nd

oth

er it

ems t

hrou

gh in

-hou

se

mag

azin

es/n

ewsp

aper

s,

inte

rnal

email

s or i

ntra

net

Have

occ

asion

s (m

orni

ng m

eetin

gs

and

oth

er ti

mes

) to

expl

ain

the

man

agem

ent s

trate

gy a

nd

bus

ines

s plan

to th

e em

ploy

ees

Have

opp

ortu

nitie

s for

eac

h

indi

vidua

l to

hold

dire

ct in

terv

iews

with

the

pres

iden

t and

oth

er

top

man

agem

ent

Cond

uctin

g qu

estio

nnair

es

targ

etin

g em

ploy

ees,

to fi

nd o

ut

their

view

s, pe

rcep

tions

, etc

.

Have

intro

duce

d a

syst

em fo

r

em

ploy

ees t

o m

ake

prop

osals

No sp

ecifi

c m

easu

res

bein

g ta

ken

Source: SME Agency, Survey on Personnel Management (November 2008).Note: Due to multiple responses, the total exceeds 100.


219

Section 4

the number of employees, the less they conduct measures such as holding the above meetings, as well as measures such as “the manager explaining the management strategy and other items through in-house magazines/newspapers, internal e-mails or intranet,” and “have introduced a sys-temforemployeestomakeproposals.”Ontheotherhand,from the fact that the percentage of companies replying that they “have opportunities for each individual to hold direct interviews with the president and other top manage-ment” grew as the size of the company measured by the number of employees became smaller, it can be conceived that indirect methods such as “explaining the manage-ment strategy using internal magazines/newspapers” or

“conducting questionnaires targeting employees, to find out their views, perceptions, etc.” are not taken, due to it being easier for SMEs to conduct direct communication between the management and its employees compared to large enterprises.

To summarize, SMEs can be assumed, compared to large enterprises, to be conducting more communication between management and employees on a daily basis through their everyday operations, and it is important for the management to consciously and strategically participate in this kind of communication to heighten the feeling among employees of achieving work satisfaction, and drawing out motivation from employees.

(2) Challenges which SMEs must overcome when conducting active communication between management and employees

The actual situation regarding communication between management and employees was pointed out in (1). Here, the challenges which SMEs must overcome when conducting active communication between management and employees will be considered. We have outlined in thepreviousFig.3-4-7thechallengeswhichcompanies,including large enterprises, feel they are facing, separately by company size measured by the number of employees. Here the analysis will be focused on SMEs and another look will be taken at the situation, both from the com-pany’s perspective as well as the employees’ perspective. Fig.3-4-9showstherepliesfromSMEsaswellastheiremployees when asked about the challenges faced in

conducting active communication between management and employees. According to this figure, there are few SMEs which consider that “the advantages of communi-cating with each other are small,” while approximately 20% of employees considered that “the advantages of communicating with each other are small,” leaving a gap between the two. It is possible that these results imply that the positive results of having communication is not widely felt among employees as much as management expects. The management should, based on understand-ing of this gap in perception, engage in tenacious commu-nication with employees, explaining their management vision and strategy, as well as the objective of work and other endeavors, and widely gained understanding among employees.

Also, while the most common reply was “no particular

An SME proactively working to increase communication between its management and employees3-4-3

Yamashita Works Co., Ltd., based in Amagasaki City, Hyogo Pref., with a workforce of 48 and capital of ¥10 million, is involved mainly in the manufac-turing and processing of metallic molds and parts, as well as the manufacture and sale of its original mirror plane processing machine, AERO LAP. AERO LAP was highly acclaimed and received the Top Invention Award at the “34th Invention Awards” hosted by the Japan Society for the Advancement of Inventions and the Nikkan Kogyo Shimbun, Ltd. The company was also selected as one of the “300 of Japan’s Vibrant Monodzukuri (Manufacturing) SMEs, 2006.”

Most new employees come to Yamashita Works without any experience in manufacturing. During OJT, Mr. Kenji Yamashita, the president, takes the lead in teaching employees the neces-sary techniques for manufacturing. Mr. Yamashita sees significance in communicating with each employee, and is barely seen at his desk during the day. Whenever he has a chance, he goes to the plant to see his employees working. The plant has

no partitions between each working space, so he is able to look across the entire space. He is always alert, and if he notices a change in any employee, he will talk to them and listen to whatever they have to say. Through such communication efforts, he not only listens to the employees’ thoughts, but also acts quickly to address all legitimate opinions. The communication flow between management and employees is very smooth. According to Mr. Yamashita, “it’s possible for the manager to reach out to each employee because we are a small com-pany of 50.”

The employees have a lot of faith in their presi-dent, and the sense of unity between the manage-ment and employees is very strong. Mr. Yamashita’s efforts have also resulted in his company being selected as one of the “1,400 Enterprises Creating Employment” (see Column 3-1-1). It can be said that Yamashita Works’ corporate culture helps to improve the employees’ motivation and compe-tence, which leads to extremely positive results in the world of manufacturing.

Case


220

obstacles” when conducting communication, the number of replies that stating that “it is difficult for employees to spare time for communication since they are too busy with their daily operations, as well as other reasons” exceeded “it is difficult for the management to spare the time for communication since they are too busy with their daily responsibilities, as well as other reasons” for both SMEs and employees. For SMEs, it can be considered important to create a work environment in which employ-ees can achieve a good balance between the time spent on daily operations and the time spent communicating with management in order to stimulate communication between management and employees, and thus boost the motivation among employees.

3. Measures to enhance employees’ capabilities

(1) Situation in SMEs regarding employee trainingIt was noted above that it is important to stimulate

communication between management and employees in ordertoboostthemotivationamongemployees.Ontheother hand, in order to improve the overall productiv-ity levels of a company, not only is the enhancement of motivation among employees important, but heightening the capabilities of employees can also be thought to be necessary. Therefore, the training measures taken by SMEs to enhance the capabilities of their employees shall

be observed.First is to analyze the measures taken by SMEs in

ordertotraintheiremployees.Fig.3-4-10showsthevari-ous training measures for permanent employees taken by large enterprises and SMEs by company size measured by the number of employees. According to this, the num-berofcompaniesconducting“Off-JT”notablydecreasesas the number of employees becomes smaller, but for “systematicOJT,”whilethenumberofcompanieswhichconduct it drops as the number of employees becomes smaller,thedifferenceisrelativelyless,andeven60.3%of companies with 20 or less employees replied that they conduct “systematic OJT.” Compared with large enter-prises, employee training measures taken by SMEs tend tobefocusedon“systematicOJT”ratherthan“Off-JT.”

Next is to observe how Off-JT is being conducted.According toFig.3-4-11,companieswitha largenum-ber of employees conduct Off-JT “in-house” or using“externaltraininginstitutions.”LargeenterprisesconductOff-JT through in-house training programs, or throughprivate training institutions such as language schools, in ordertotrainalargenumberofemployees.Ontheotherhand, SMEs are thought to have a tendency to focus more onOJTratherthanOff-JT,duetolimitationsinmanage-ment resources making it difficult for SMEs to hold in-house training programs, as well as the limited number of employees in SMEs lowering the cost-effectiveness of Off-JT,togetherwithotherreasons.

Fig. 3-4-9 The gap between management and employees in the challenges faced in conducting active communicationThere was a relatively large number of replies from employees saying that the advantages of having communication are small

Sources: SME Agency, Survey on Personnel Management (November, 2008); Nomura Research Institute, Ltd., Survey on Satisfaction with Work and Motivation (December 2008).


47.9

6.4

11.0

22.1

12.6

26.3

20.9

13.0

30.0

9.8

0204060 0 20 40 60(%) (%)

It is difficult for the management to communicate actively with each employee,

due to the large number of employees

It is difficult to make time given that employees are too busy with their

regular work

It is difficult to make time given thatthe management is too busy with

their regular work

The advantages of communicatingwith each other are small

No particular obstacles

SMEs Employees of SMEs


221

Section 4

Fig. 3-4-10 The implementation of training measures for permanent employees taken by enterprisesCompanies that have a small number of employees tend to conduct systematic OJT rather than Off-JT

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Excludes “no responses.” 2. Statistics based on the percentage of enterprises that replied that there is either “proactive implementation” or

“implementation” regarding the implemented items of personnel training for permanent employees. 3. OJT refers to training or education that one receives through actual work. 4. A job rotation refers to the periodic rotation of duties, based on a personnel training plan, in order to have employees

experience various jobs. 5. Off-JT is training or education that occurs away from the work place, and refers to the training or education that takes

place through implementation of training courses and other activities. 6. Support for self-enlightenment refers to the measures implemented for the improvement of the employees’ abilities

through their own efforts, such as support for taking correspondence courses and acquiring qualifications, as well as introducing external training institutions.

60.3

26.733.5

43.7

77.8

44.853.0

58.8

84.8

52.3

63.9 64.7

89.6

59.5

76.3 74.9

90.9

68.8

81.274.0

0

10

20

30

40

50

60

70

80

90

100

(%)Up to 20 21-50 51-100 101-300 301 or more

Systematic OJT Off-JT Support for self-enlightenmentJob rotation

Fig. 3-4-11 Off-JT training institutions of enterprisesCompared to enterprises with a large number of employees, enterprises with a small number of employees tend to have a low percentage in terms of conducting Off-JT, in-house or through external training institutions

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Excludes “no responses.” 2. The percentage of enterprises that replied that they “proactively implement” Off-JT has been collected.

5.5

7.1

3.4

1.61.1

4.7

8.9

4.9

1.8 1.6

6.9

11.4

6.0

2.71.7

12.4

10.3

6.5

3.5

2.3

15.616.4

6.5

2.71.6

0

2

4

6

8

10

12

14

16

18Up to 20 21-50 51-100 101-300 301 or more(%)

In-house External training institutions Chambers of commerce and industry or

support organizations

Local governments Central government


222

(2) Challenges faced in conducting employee training

What challenges are SMEs facing in conducting employee training? Fig. 3-4-12 shows the replies fromcompanies when asked about the challenges faced when conducting employee education and training. According to this, the most common reply across all company sizes measured by the number of employees was “difficulty in managing the costs and time for education, training, etc.”

Under these circumstances, it is worth noting that the number of companies which replied “cannot see any posi-tive effects from education, training or other activities” decreased as the company size measured by the number of employees became smaller. Since SMEs have a smaller number of employees, it is relatively easy to conduct edu-cation and training under close communication among employees, which suggests the possibility that it is easier for SMEs to obtain positive results from employee train-ing measures. As mentioned earlier, while having a small number of employees may lessen the cost-effectiveness ofOff-JT, it ispossible that thepositiveeffectsofOJT,which is education and training conducted under close communication among employees, are enhanced. These are the reasons which may underlie the SMEs’ focus on OJTratherthanonOff-JT.

(3) For further strengthening employee development

Employee development through education and train-ing can also be assumed to have a positive effect on

employees’ work satisfaction. When we observe the pre-viousFig.3-4-4,theratioofpermanentSMEemployeesthat replied “self-realization and growth through work” as being the largest source of their rewards from work was not high at 8.2%, but ranked fourth following “wage levels,” “sense of fulfillment through work” and “internal evaluation.” Meanwhile, Fig. 3-4-13 shows the relationbetween the measures taken by SMEs to educate and train their permanent employees, and the SMEs’ under-standing of employees’ work satisfaction. According to this, it can be seen that compared to SMEs which do not conduct education or training, SMEs which “proactively implement” education or training such as “systematic OJT” tend to have their employees feel more satisfiedfrom their work. Therefore, it is necessary for SMEs to proactivelyconductemployeedevelopment,throughOJTandOff-JT,inordertoelevatethemotivationandcapabil-ity of their employees.

As discussed earlier, each individual SME has very limited management resources, as well as a small number of employees, and from reasons such as the cost-effectiveness of having in-house training programs being low, as well as other reasons, there are factors making it difficultforSMEstointroduceoriginalOff-JTprograms.Some SMEs utilize the chambers/societies of commerce and industry and SME support organizations and other institutions(seepreviousFig.3-4-11),but togetherwiththese measures, it can also be considered important to provide various support policies in order for SMEs to proactively work on training their employees.

Fig. 3-4-12 Challenges that enterprises are aware of when conducting employee education and trainingThe smaller the number of employees, the easier it is to see the effects of training


16.2

8.65.6 5.5

6.2 7.14.3

5.5 7.44.1

6.511.0

3.9

13.3

2.6

8.93.5

42.7

21.5

42.1

23.017.3

40.1

26.0

16.9

36.5

28.8

39.3

32.0

13.8

05

1015202530354045

Up to 20 21-50 51-100 101-300 301 or more

(%)

Difficulty in managing the costs and time for education, training, etc.

Difficulty in seeing the effects of education,

training, etc.

Difficulty in collecting personnel worth

implementing education and training

Despite the education and training, employees quit

Uncertainty regarding the type of education and

training that should be implemented

No issues


223

Section 4

Fig. 3-4-13 Relation between the implementation of education and training for permanent employees in SMEs, and SMEs’ understanding of the work satisfaction that employees feelFor enterprises that are not taking measures for personnel education, work satisfaction is low

1.6

2.1

1.1

1.6

1.4

Extremely high Rather high Neither Rather low Extremely low

7.77.7

5.45.4

7.57.5

6.06.0

21.621.6

49.349.3

52.052.0

48.448.4

47.147.1

52.852.8

33.133.1

33.933.9

36.636.6

38.138.1

19.119.1

7.77.7

7.67.6

5.95.9

7.47.4

4.94.9

100%0%

Proactively implement systematic OJT

Proactively implement job rotations

Proactively implement Off-JT

Proactively implement supporting measures

for self-enlightenment

Do not implement any of the above items

Source: SME Agency, Survey on Personnel Management (November 2008).Notes: 1. Statistics based on the percentage of enterprises that replied that there is “proactive implementation” regarding the

implemented items of personnel training for permanent employees. 2. Excludes “not sure.” 3. Statistics based only on SMEs.

An SME which proactively works on educating and training its employees3-4-4

Shinko Protec, based in Yahaba Town of Iwate Prefecture, with a workforce of 24 and capital of ¥10 million, is involved in the installment, mainte-nance and other functions related to air condition-ing facilities in normal households and offices, and focuses especially on the introduction of heat pumps and other energy-saving, environment friendly air conditioning facilities.

Shinko Protec focuses on its employee develop-ment in order to continuously create new busi-nesses. The three main initiatives taken by Shinko Protec in relation to employee development are (1) setting and planning a 10 year vision, (2) early morning study sessions, and (3) supporting the acquisition of various qualifications.

(1) First of all, “setting and planning a 10 year vision” is a measure in which Shinko Protec’s employees are required to come up with an image of themselves 10 years later, and have the employ-ees think up a career plan which will lead them to that goal. By doing this, the employees clarify their goals, find the challenges which they need to face in order to achieve these goals, and come up with solutions to overcome the challenges on their own. Following this process, employees set the targets which they will work on over the coming year, and their superiors will evaluate the progress of each employee in reaching these targets. By reflecting the results of this evaluation on the wage levels,

superiors will arouse the motivation of the employ-ees for growth.

(2) The second initiative, “early morning study sessions,” has been going on for around 15 years. Presently, these meetings are held three times a week, starting from 7:30 in the morning and lasting approximately one hour with employees as the presenters, making presentations about the company’s businesses and systems, as well as explaining the technology necessary in conducting operations.

(3) The third initiative is one in which the company supports the acquisition of various work-related qualifications by fully covering the costs related to acquiring the qualifications, and even for qualifications which are not work-related, the company covers up to 25% of the costs related to acquiring the qualifications.

These proactive initiatives in employee develop-ment reflect the views of Mr. Yukio Muramatsu, the president, namely that “we want our employees to acquire new capabilities, besides the expertise which they have already acquired, set long-term goals, and think back from these long-term goals as to what actions they should be taking right now.” Mr. Muramatsu explains that these employee development initiatives are important for creating new services.

Case

Section 5 Working style and work life balance

224


Until the previous section, after taking a general view of the employment trends within SMEs, measures to be taken in order to elevate both the motivation and ability of SMEs’ personnel were reflected upon, all while analyzing the current situation of wages and the sense of reward that they feel toward their work, among other issues. This section, as the last pointinChapter3,willlookatthecurrentsituationandissuesbyfocusingontheworkingstyleatSMEswithparticularconcern for the work life balance in a time where the employment environment is changing through decreases in overtime work, personnel reductions and other issues following the economic downturn.

1. The current situation and issues of the work life balance

As seen in Section 1, the total working hours of SME employees in Japan prove to be longer than those of large enterprise employees. Given that the total working hours constitute an important factor in the work life balance, what are the relevant conditions in SMEs?

Balancing work and life is an effort to realize “a society where, even within one’s home and one’s region, each and every one of the people can work with a sense of reward and fulfillment while meeting the responsi-bilities of their work and which, at the same time, allows for an array of choices within the various stages of life, such as during the child rearing period as well as dur-ing the middle-age years.”35) This is something that the

government has been actively promoting. The work life balance concerns various aspects such as the structure of working hours and providing work opportunities for women and elderly citizens who wish to work. Here will bealookatworkinghours.Fig3-5-1isaninternationalcomparison of the annual total of actual working hours of people in the manufacturing industry. While the numbers for Japan have greatly decreased compared to the 1980s, recently reaching around the same levels of the United States and United Kingdom, they are still long compared to Germany and France. Additionally, inequalities in terms of working hours have been pointed out, such as in cases in which women who have resigned for child rear-ing or the elderly cannot work as they desire, while at the same time, the male permanent employees are made to work to an extreme.

35) CabinetOffice,Work-Life Balance Charter (December 2007).

Fig. 3-5-1 Annual total working hours of production workers (by country) (estimate in manufacturing industry)Total working hours in Japan are longer than those in Germany and France

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

80 85 90 95 96 97 98 99 00 01 02 03 04 05 06

(Year)

(Hours) Japan U.S. U.K. Germany France

Source: The Japan Institute for Labour Policy and Training, Comparison of Databook of International Labour (March 2009).Note: As for the size of the establishment, Japan consists of 5 people or more, the U. S. has no set range, and others consist

of 10 people or more.


225

Section 5

Oneof the reasonswhyworkinghoursatSMEsarelonger than those at large enterprises is thought to be the factthatSMEshavefewerholidays.Fig.3-5-2showsthepercentages of companies for their annual total number of holidays by employee size. There is a tendency for compa-nies with fewer employees to have fewer annual holidays. Including working hours, how should the current situation of the SME work life balance be evaluated?

On the other hand, after entering the recession inthe end of 2007, and with the sharp decreases in sales and orders, there have been reductions in overtime and increasesinholidayssuchasbyhaving3daysoffwhileworking 4 days a week, especially among SMEs that have seen rapid deterioration of business sentiment since last fall.36) Will the necessity to push for a work life balance be addressed with the reduction of working hours as a result of these changes?

First will be a look at the opinions of SME employees regarding the work life balance through the results of the questionnaire survey for companies, Questionnaire Sur-vey on Application of Human Resources,37) and the internet

questionnaire survey for employees, Questionnaire Sur-vey on Workplace Environment.38) Fig. 3-5-3 shows theanswers given to the questions “Are employees balancing work and life?” and “Are you balancing work and life?” to the companies and employees, respectively. Regard-ing the employees of both SMEs and large enterprises, there is not much of a difference, with the majority of the employees answering that they believe they are balancing workandlife.Lookingatthecompanyresponsesontheother hand, the rate that they believe their employees are balancing work and life at is higher at SMEs, leading to the possibility of a widening gap between the companies and employees.

Looking at what companies and employees believeto be the obstacles employees face in achieving a work lifebalance(Fig.3-5-4),SMEsrespondedatahighratethat “lack of staff/no substitutes,” “difficulty of taking holidays,” and “long work hours” are the reasons behind their employees not being able to balance work and life. SME employees also responded at a high rate that those factors are obstacles, showing an agreement in perception

36) SMEAgency,The Emergency Expanded Bureaus of Economy, Trade and Industry Director-General Meeting (February 2009). 37) MitsubishiUFJResearchandConsultingCo.,Ltd.,Questionnaire Survey on the Application of Human Resources in Enterprise Activities

(November2008),seeChapter3,Section1,Footnote25.38) MitsubishiUFJResearchandConsultingCo.,Ltd.,Questionnaire Survey on Worker-friendly Workplace Environments (December 2008), see

Chapter3,Section4,Footnote33.

Fig. 3-5-2 Percent of enterprises with a certain number of annual holidays (by employee size)Companies with a smaller employee scale are inclined to have a smaller number of annual holidays

Source: MHLW, FY2008 General Survey on Working Conditions.

19.219.2

0% 100%

1,000 people or more

300-999 people

100-299 people

30-99 people

Up to 89 days 90-99 days 100-109 days 110-119 days 120 days or more

20.820.816.416.428.128.115.515.5

10.210.2

2.92.9

6.26.2

4.04.0

5.55.5

10.510.5

22.422.4

28.428.4

29.829.8

19.319.3

17.817.8

20.620.6

51.451.4

42.042.0

28.828.8


226

Fig. 3-5-3 The difference between enterprises and employees concerning work life balanceRegardless of size, while the majority of the employees believe they are achieving a work life balance, there still is a difference between the enterprises and its employees among SMEs

Sources: Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on the Application of Human Resources in Enterprise Activities (November 2008); Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on Worker-friendly Workplace Environments (December 2008).

Notes: 1. Excludes “no responses.” 2. Statistics based only on permanent employees.

14.414.4

0

10

20

30

40

50

60

70

80

90

100

Large enterprises SMEs0

10

20

30

40

50

60

70

80

90

100


6.06.0

4.64.613.213.2

43.543.5

53.053.0

31.531.5

15.015.0

3.33.3

15.515.5

47.647.6

24.424.4

19.419.4

49.549.5

24.324.3

16.516.5

1.61.6 1.91.9

Balanced Rather balanced Rather not balanced Not balanced Not sure

8.08.0 6.76.7

[1] Enterprises [2] Employees(%) (%)

Fig. 3-5-4 Obstacles in achieving a work life balanceA high percentage believe that issues such as “the difficulty of taking holidays” and “the lack of staff” are obstacles in achieving a work life balance

55.6

16.0

64.258.0

18.5 17.3 21.0

7.32.9

55.6

22.2

11.116.0

7.4 6.2

45.8

2.3

44.2

58.3

29.6

14.0 12.7 9.7

23.0 20.3 19.6

7.5

0

10

20

30

40

50

60

70

(%)

(%)

Diffi

culty

of

taki

ng h

olid

ays

Taki

ng u

p po

sts

away

from

hom

e an

d fa

mily

Long

wor

k ho

urs

Lack

of s

taff/

no s

ubst

itute

s

Larg

e am

ount

s of

wor

k

Holid

ays

and

days

off

not

mat

chin

g w

ith fa

mily

Lack

of f

lexi

bilit

y in

wor

king

hou

rs

Wor

k sh

ift d

oes

not

mat

ch w

ith fa

mily

hou

rs

Chea

p w

ages

Lack

ing

busi

ness

pow

er to

bea

r a

dditi

onal

exp

ense

s

Irreg

ular

wor

king

hou

rs

Lack

of k

now

-how

and

info

rmat

ion

Freq

uent

bus

ines

s tri

ps

Othe

rs

6.2

50.4 49.6

28.1

7.3 4.7

57.5 57.552.7

19.2 17.9

48.552.2

14.29.9

39.8

10.6 14.2 17.2

2.9

43.738.5

17.7 22.1

7.516.7

4.8 3.30

20

30

50

70

10

40

60

[1] Enterprises

[2] Employees



Notes: 1. Excludes “no responses.” 2. Statistics based only on those that answered that work life balance is “not balanced” or “rather not balanced.” 3. Due to multiple responses, the total exceeds 100.


227

Section 5

betweenbothsides.Lookingspecificallyattheholidays,as was seen in Fig. 3-5-2, the smaller the scale of thecompany, the fewer total holidays are obtained annually. Ontheotherhand,evenifitisanSME,thehigherthesat-isfaction level is concerning the amount of holidays one can take annually, the higher the rate of employees who believe that they are balancing work and life. Therefore, it can be said that the holidays have an effect on the work life balance (Fig. 3-5-5). On the other hand, while theemployees see “low wages” as an obstacle, the company does not share this view. It can thus be said that there is a gap between their perceptions.

Furthermore, in regards to SMEs, while companies see “awareness reforms of employees” and “revisions in the ways of working” as the crucial measures that enable employees to work with a work life balance, employees see “awareness reforms among the managers” and “strong support and encouragement from the management class” as especially important. Following those factors, at a high rate and similar to what the companies have said, employ-ees see the “awareness reforms of employees” and other factorsas important (Fig.3-5-6). In termsofachievinga work life balance among SMEs, while it is crucial to

implement specific measures, such as reviewing work content, it can also perhaps be said that it is important for the management class and others to take initiatives to support employees so that they develop the awareness to make efforts to achieve a work life balance.

Until now, issues and measures for employees to achieveaworklifebalancehavebeenreviewed.Lookingat the profit conditions of companies with employees who believe that they achieve a work life balance versus those with employees who do not believe so, it can be seen that the companies in which employees perceive themselves as having a better work life balance enjoy higher profits, ascanbeobserved inFig.3-5-7.While this resultmaynot necessarily mean that efforts to achieve a work life balance for employees will lead to increased profits, one can assume that employees’ motivation toward work would increase if increased profits were given back to employees through wages, thus decreasing what hinders the achievement of a work life balance and enhancing employees satisfaction. From this perspective as well, it can be said that it is ideal for SMEs to take measures in innovating and producing new products while striving for increased profits.

Fig. 3-5-5 Effects of annual holiday satisfaction of SME employees on their work life balanceThe higher the satisfaction on holidays, the higher percentage achieving a work life balance


Note: Statistics based only on SME permanent employees.

0

10

20

30

40

50

60

70

80

90

100

(%)

Fully satisfied Very satisfied Neither Not very satisfied Barely satisfied

Balanced Rather balanced Rather not balanced Not balanced Not sure

29.929.9

49.349.3

69.069.0

50.250.2

14.314.3

29.529.5

13.413.4 12.212.2 20.7 20.7

42.342.3

7.28.04.20.1

31.231.2

42.642.6

26.926.9

26.226.2

1.91.9

7.57.5

7.07.0

8.78.7 5.85.8 4.64.6


228

Fig. 3-5-6 Gaps concerning the implementation of measures taken to achieve work life balance in SMEsThere is a large gap concerning “strong support and encouragement from the management class” as well as “awareness reforms among the managers”

15.0

2.5

9.7

17.1

0.9

2.4

1.3

13.2

21.3

26.9

5.9

4.1

12.8

36.6

21.9

22.4

13.0

1.9

18.2

24.7

13.3

7.5

18.2

25.4

32.3

30.2

9.7

10.8

29.0

32.7

45.4

42.0

040 20

Nothing specific

Others

Personnel system based on ability, not on the length of working hours or taking holidays

Wage system based on ability, not on the length of working hours or taking holidays

Clarification of personnel evaluation of those that have secured holidays

Providing information such as good cases

Installation of teleworking and satellite office

Creating a plan for paid leave or setting a company holiday

Company-wide revisions in the ways of working

Revisions in the ways of working

Securing substitute personnel by reshuffling personnel and others

Securing substitute personnel by employing temporary workers and others

The building of a back up system that enables the sharing of work

Awareness reforms of employees

Awareness reforms among the managers

Strong support and encouragement from the management class

0 20 40(%) (%)

Measures implemented by enterprises Measures desired by employees


Notes: 1. Statistics based only on SMEs and SME permanent employees. 2. Due to multiple responses, the total exceeds 100.

Fig. 3-5-7 Effects of work life balance on SME employees’ workplaces’ profitsCompanies whose employees enjoy a work life balance are also inclined to enjoy higher profits


Notes: 1. Statistics based only on SME permanent employees. 2. Statistics based on the profit conditions of one’s company, excluding “not sure.”

0% 100%

Not balanced

Rather not balanced

Rather balanced

Balanced


27.627.6

27.027.0

27.127.1

17.817.8

23.123.1

18.118.1

18.418.4

21.921.9

14.114.1

10.010.0

8.88.8

3.03.0

5.05.0

5.65.6

6.86.8

32.232.2

39.839.8

40.140.1

46.646.6 6.86.8


229

Section 5

2. Employment of women

According to the “Action Agenda for the Promotion ofWork-LifeBalance”(December2007)oftheCabinetOffice, one of the many “requirements necessary for a‘society that achieves a work life balance’” is “a system that actually allows parents currently raising children, as well as women and the elderly who desire to work, varied and flexible ways of working that meet the various steps in life such as the child rearing period as well as during middle-age.” This subsection will mainly analyze women’s employment in SMEs based primarily on com-parisons by company size.

(1) Current situation of women’s employmentLookingatwomen’semploymentconditionsinJapan

through the MIC’s Employment Status Survey, from 1997 to 2007, the employment rate of women has been increas-ing as a whole. While the breadth of improvement is conspicuousespeciallyamongthoseof25-29and30-34age ranges, when compared to men, the level remains low (Fig.3-5-8).Following this, lookingat the transitionof

the rate of women in the workplace according to scale and according to employment type, while the percentage of women among permanent employees has not changed much over the past 25 years, compared to the female per-manent employee rate of large enterprises that is making a transition at around 22% to 27%, the female permanent employee rate of SMEs is transitioning at around 28% to32%,SMEsemployfemaleemployeesatahigherrate(Fig.3-5-9).

Following this, Fig. 3-5-10 to Fig. 3-5-12 show thetransition of wages, working hours and the wages per hour of permanent employee by gender and company size. According to the figures, the characteristics that can be observed are that 1) there is a large difference between the wages of men and women, 2) while men have slightly longer working hours, a large difference in trend cannot be seen, and 3) concerning wages and wages per hour,while a large difference between the manufacturing and non-manufacturing industries in men cannot be observed, as for women, there is a difference between manufactur-ing and non-manufacturing industries.

An SME striving to achieve a work life balance through thorough information sharing with employees3-5-1

Tenhiko Industrial Co., Ltd. of Suminoe Ward, Osaka City, with a workforce of 39 and capital of ¥20.83 million, is an SME that primarily deals with the wholesale of special steel materials. Established in 1875, it has a longstanding history of more than 130 years within the industry. In addition to whole-sale, it deals with the development and manufac-turing of metal processed goods by making use of a processing network that consists of both its own company and external processing partners.

Since its establishment, it has stood by its motto “employees as priority.” Based on the belief that employees cannot truly care for their customers without their devotion to the company. The com-pany, aiming for employees themselves to take initiatives to think and act, has formed various committees as part of corporate activities. Specifi-cally, there are committees such as the “Hatsuratsu (lively) Committee,” for physical strength building and attaining health through early morning jogs, mountain climbing, etc.; the “Hirameki (inspiring) Committee,” which encourages reading books and newspapers for self-enlightenment; the “Sukkiri (neat) Committee,” which involves organizing, tidying, cleaning and discipline activities as well as road traffic safety courses for company safety and cleanliness; the “Tokimeki (wonder) Committee,” which deals with the planning, preparation and

other activities of the in-house journal as part of publicity activities. Employees voluntarily involve themselves in the development of these commit-tees. The employment of women is also actively carried out, and in order to have capable female employees work continuously, the company is tak-ing measures to create a system that would enable women to remain longer in the company, such as introducing the child care leave system according to specific needs.

Moreover, the company has incorporated a management policy of “heightening the 3Hs (H for happiness),” which includes encouraging the pursuit of the well-being of the self, the family and the company. In addition, the company is aiming for thorough information sharing regarding the above-mentioned systems and measures through compre-hensive explanations of everything including their social backgrounds, the company perspectives, and the details of the systems, at times such as during the morning assembly or company-wide meetings.

As a result, a company culture that encourages employees to do anything that would facilitate working has taken root within the company as a whole, which has been linked not only to the revi-talization of the workplace environment, but also to the training of its employees.

Case


230

Fig. 3-5-8 Employment rate according to gender and ageWhile the employment rates of women from the ages of 25 to 34 are rising between 1997 and 2007, it still remains low compared to men

93.0 95.8

89.7 92.989.8 93.4

64.3

54.4

68.7

56.8

73.5

63.5

0

10

20

30

40

50

60

70

80

90

100

15-1

9 ye

ars

20-2

4 ye

ars

25-2

9 ye

ars

30-3

4 ye

ars

35-3

9 ye

ars

40-4

4 ye

ars

45-4

9 ye

ars

50-5

4 ye

ars

55-5

9 ye

ars

60-6

4 ye

ars

65-6

9 ye

ars

70-7

4 ye

ars

75 ye

ars o

r abo

ve

Male (1997) Male (2002) Male (2007)

Female (1997) Female (2002) Female (2007)(%)

Source: MIC, Employment Status Survey.Note: The employment rate refers to the percentage of those engaged in work among the total number.

Fig. 3-5-9 Trend in the percentages of women regarding their employment type (by employee size)As for the permanent employees of SMEs, the rate of women is higher compared to permanent employees of large enterprises

Source: Recompiled from MIC, Employment Status Survey.Notes: 1. Permanent employees refers to “regular staff and employees” in the above survey. 2. Non-permanent employees refers to “employees at companies and other organizations excluding executives” other

than “permanent employees.” 3. Statistics based only on non-primary industries (excluding “government and other public organizations” and “other


retail industry and eating and drinking establishments) are classed as SMEs. Enterprises with 300 or more employees (100 or more for the wholesale and service industries, and 50 or more for the retail industry and eating and drinking establishments) are classed as large enterprises.

5. Shows the percentage of women that make up each of the groups.

24.9 25.1 26.5 24.6 21.5 21.7

31.8 30.6 32.2 30.2 27.8 29.5

72.5 75.1 74.8 76.9 73.869.3

65.368.7 70.4 69.5

65.3 64.8

0

10

20

30

40

50

60

70

80

90

100

82 87 92 97 02 07(Year)

Large enterprises (permanent employees) SMEs (permanent employees)

Large enterprises (non-permanent employees) SMEs (non-permanent employees)

(%)


231

Section 5

An SME that has started to make efforts to employ women3-5-2Syoei Co., Ltd. of Mimasaku City, Okayama

Prefecture with 85 employees and capital of ¥55 million is an SME that primarily manufactures ship engine parts. Possessing high skills, it boasts a 60% world share of cam parts of ship engines, and the company has been selected for the “300 of Japan’s Vibrant Monodzukuri (Manufacturing) SMEs, 2006.”

Traditionally, the manufacturing site of the com-pany, which belongs to the smokestack industry, had been dominated by men. However, in recent years, the company started to actively employ women, not only due to the difficulty of securing employees given the progressive depopulation of the region, but also because of the company’s view to diversify its employees. It has been proved that the various perspectives and the creativeness of women can indeed be applied within the process of women’s involvement in manufacturing and devel-opment, leading to the full-fledged employment

of women. Additionally, when it came to designing the recently completed new factory, the aim was to be a factory that will be easy to use for its employ-ees, including women. Thorough consideration was given to creating an environment that is easy to work in, not only in the working spaces but also in non-working spaces such as the cafeteria.

With the proceeding of women’s employment, as was noted above, it was expected that there would be an increase in child care leave requests in the future. For that reason, the company is cur-rently trying to construct a child care leave system, seeking the cooperation of certified social insur-ance and labor consultants.

The company president, Setsuzo Tsujii says his future goal is “to produce a female engineer who will be appreciated not only in Japan but through-out the world, and as a first step, I would like to foster a female master engineer at an early stage.”

Case

Fig. 3-5-10 Trend of earnings of permanent employees (by gender)There is a huge disparity in wage levels between men and women

Source: Recompiled from MHLW, Basic Survey on Wage Structure.Notes: 1. In the above survey for 2004 and earlier, a “permanent employee” referred to a person whose type of employment

was described as “regular” and whose type of work was ordinary. From 2005 onwards, it refers to “regular employees and staff” or “permanent employees” whose type of work is ordinary.



35.5 39.140.5

42.4

42.435.7

38.5

40.8

42.2

42.8

35.5

39.5

40.4

42.5

42.2

28.5

32.0 32.1

32.4 32.7

28.5

31.8

32.6

32.432.528.6

32.1

31.932.4

32.7

(¥10,000 /month)

Large enterprises (overall) Large enterprises (manufacturing industry) Large enterprises (non-manufacturing industry)

SMEs (overall) SMEs (manufacturing industry) SMEs (non-manufacturing industry)

20.723.6

25.527.8 28.2

18.0

20.8

23.3 26.0 27.821.524.3

26.028.1 28.3

16.319.5 20.8

22.2 22.7

14.617.2

18.6 19.6 20.217.5

21.0

22.0 23.3 23.7

0

5

10

15

20

25

30

35

40

45

0

5

10

15

20

25

30

35

40

45

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07(Year)

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07(Year)

(¥10,000 /month)[1] Male [2] Female


232

Fig. 3-5-12 Trend in employees’ earnings per working hour (by gender)While there is not much of a difference for men between manufacturing and non-manufacturing industries, a difference can be observed for women between the manufacturing and non-manufacturing industries

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

1,8892,184 2,281

2,385 2,374

1,8692,158

2,290

2,343

2,390

1,9002,199

2,277

2,404

2,366

1,400 1,683 1,728 1,735 1,739

1,3771,665

1,726 1,716 1,707

1,4141,693 1,730 1,745 1,756

0

500

1,000

1,500

2,000

2,500

90

(Year)

(Yen/hour)

1,189

1,4041,526

1,664 1,687

1,010

1,2341,374

1,530 1,6451,2491,451

1,5601,686 1,694

864

1,0961,193 1,268 1,293

770

9651,054 1,107 1,119

938

1,185

1,2721,339 1,368

0

500

1,000

1,500

2,000

2,500

90

(Year)

(Yen/hour)

[1] Male [2] Female







Fig. 3-5-11 Trends in permanent employees’ working hours (by gender)There is not much of a difference in the working hours trends between men and women

188.2179.2 177.6 178.0 178.5

190.8

178.3

178.3 180.2 179.0186.7

179.6

177.3 177.0 178.2

203.8189.9 185.8 186.6 187.9

206.8191.0 188.7 188.8 190.4

202.1189.3 184.2 185.6 186.5

0

50

100

150

200

250

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

(Year)

(Hours/month) (Hours/month)

173.9 167.8 167.0 167.2 167.3178.3 168.9 169.8 170.0 168.8172.5 167.5 166.4 166.8 167.1

188.2177.8 174.3 175.1 175.4

190.0178.5 176.4 177.1 180.9

186.8177.3 173.2 174.2 173.2

0

50

100

150

200

250

90

(Year)

[1] Male [2] Female








233

Section 5

(2) The opinion of women regarding employmentWhile women’s employment rate has been increas-

ing in the last 10 years, looking at opinions concerning women actually continuing with work, the number of people who believe “women should work until they marry” has decreased, both in men and women, and there is an increase in the rate of opinions that see it as positive forwomentoworkevenafterhavingchildren(Fig.3-5-13).Infact,ofthewomenthatretiredfromworktoraisechildrensinceOctober2002,whileapproximately80%ofthemarenotemployedasofOctober2007,approximately60%ofthemdesiretoworkagain(Fig.3-5-14).

In addition, concerning the ideals of how one should work in times nearing childbirth as well as during the child rearing period, the highest proportion of both large enterprise permanent employees and SME permanent employees see the option of “first retire from one’s job while child rearing, and then return to work as a perma-nent employee” as ideal, and adding together the option of “continue work by being a full-time permanent employee while child rearing” the majority of employees consider it ideal for one to work as a permanent employee (Fig. 3-5-15).Yet,of thewomenthathaveworkedasperma-nent employees but consequently retired in order to raise children and then returned to work, a mere 15% or so havebeenrehiredaspermanentemployees(Fig.3-5-16),demonstrating that there is a huge gap between the hopes and the reality of women’s employment.

Nevertheless, in this situation, SMEs hold a high per-centage as a place of re-employment for female permanent

employees. That being said, there are high hopes that SMEs will be the place for women to find employment. This conclusion also comes from asking employees whether it is possible to return to work as a permanent employee again for female permanent employees that have retired for childbirth or child rearing. According to the Questionnaire Survey on Workplace Environment, a higher percentage of female permanent employees from

Fig. 3-5-13 Views on women workingPerspectives on women working are changing

Source: Cabinet Office, White Paper on Gender Equality (June 2008).Notes: 1. As for “women should retire once they have children, and should start working again after they have grown up,” in the

1984 survey it was “women should work until marriage or child birth, and once done with early childcare, should start working again.”

2. As for “not sure,” in the surveys of 1992, 2002, 2004 and 2007, they were “other/not sure.”

15.9

9.85.7

5.53.8 4.0

26.2

16.4

14.8

7.7 8.35.9

15.613.4

15.1

11.3 11.5 12.3

9.7

15.7

19.8

37.238.6

40.9

20.9

36.139.2

31.8 32.4 32.2

11.6

8.65.3

6.5 5.44.7

0

5

10

15

20

25

30

35

40

45

50

72(Year)

(%)

Women should not work Women should work until they marry

Women should work until they have children Women should continue working even after having children

Women should retire once they have children, and should start working again after they have grown up

Not sure

12.3

7.86.1

2.8 3.5 1.73.3

18.6

11.1

10.85.0 5.4 5.1

10.611.1

8.7 9.1 9.511.5

20.126.3

38.0

41.945.5

39.5

45.3 45.4

40.6

37.033.8

10.36.9

3.6 4.3 4.92.80

5

10

15

20

25

30

35

40

45

50

7284 8492 9202 0204 0407 07(Year)

(%)[1] Male [2] Female

Women that had retired from their previous job to raise children after October 2002 and are currently working (20.1%)

Women that had retired from their previous job to raise children after October 2002 and are not currently working (79.9%)

Women that had retired from their previous job to raise children after October 2002 and are not currently working (79.9%)

Of which show desire in working (58.8%)

Of which show desire in working (58.8%)

Of which do not show desire in working (41.2%)

Of which do not show desire in working (41.2%)

Fig. 3-5-14 The percentage of women that desire to work again after having retired to raise childrenWhile the percentage of women that work after having retired to raise children is not high, more than a few desire to work

Source: MIC, FY2007 Employment Status Survey.Note: Statistics based only on women that retired from their

previous job to raise children after October 2002.


234

Fig. 3-5-15 Ideal ways of working around child birth/during child rearing period (according to employee size)A high percentage of both the employees of large enterprises and SMEs find it ideal to “first retire from the job, and then return to work as a permanent employee”


Note: Statistics based only on permanent employees of 54 years or below.

41.4

6.7

14.4

37.5

41.9

11.7

19.7

26.7

0

5

10

15

20

25

30

35

40

45

50

(%) Large enterprises SMEs

First retire from the job while child rearing and then return

to work as a permanent employee

First retire from the job while child rearing and then return to work as a non-permanent

employee

Continue limited work by being a non-permanent employee

while child rearing

Continue work by being a full-time permanent

employee while child rearing

Fig. 3-5-16 Current employers of female permanent employees that had previously retired to raise childrenThe percentage of SMEs rather than large enterprises is higher as the place of re-employment for women that had previously retired to raise children

Source: Recompiled from MIC, FY2007 Employment Status Survey.Notes: 1. Permanent employees refers to “regular staff and employees” in the above survey. 2. Non-permanent employees refers to “employees at companies and other organizations excluding executives” other

than “permanent employees.” 3. Statistics based only on women who had previously retired from a permanent employee position to raise children,

and are currently working. 4. Enterprises with 299 or less employees (99 or less for the wholesale and service industries, and 49 or less for the


5. Statistics of large enterprises and SMEs are based only on non-primary industries (excluding “government and other public organizations” and “other corporate bodies”).

Permanent employees (SMEs) 10.8%

Others 39.7%Others 39.7%

Non-permanent employees (large enterprises) 21.5%Non-permanent employees (large enterprises) 21.5%

Non-permanent employees (SMEs) 24.2%

Non-permanent employees (SMEs) 24.2%

Permanent employees (large enterprises) 3.8%


235

Section 5

SMEs than that of large enterprises believe there is a pos-sibilityofbeingabletogobacktowork(Fig.3-5-17).

(3) Employment of women by SMEsWhat measures are being taken by the enterprises to

allow female employees to work and raise children at the sametime?Fig.3-5-18showswhethertherearemeasuresbeing taken to allow women to raise children while work-ing as permanent employees. According to this figure, in many of the systems, the SMEs are inclined to have less complete systems compared to large enterprises, but in terms of the “child care leave system,” a relatively large number of SMEs have them set up.39) Additionally, even in cases where the system is not set up, by dealing with them flexibly, there are places that are taking measures that could be considered the same standard as those of large enterprises. Especially in terms of measures such as the installation of teleworking and satellite offices, or the approval of bringing children into the office, we can see that they are further advanced than those of

Fig. 3-5-17 The possibility of re-employment for former female employees that had previously retired to give birth to and raise children (by employee size)It is believed the employees of SMEs have a higher chance of re-employment


Note: Statistics based only on permanent employees of 54 years or below.

26.226.2

23.223.2

31.431.4

35.935.9

32.232.2

9.99.9

10.210.2

Large enterprises

SMEs

Generally possible Depends on their effort

Very difficult Not sure

31.031.0

100%0%

Fig. 3-5-18 The conditions of measures being put into effect for women to work while raising childrenEven if the systems are not set up, there are many SMEs that are flexible in dealing with them; in addition, measures such as “teleworking” are dealt with flexibly compared to large enterprises

8.18.1

27.727.7

21.721.7

35.735.7

47.747.7

9.59.5

80.180.1

9.49.4

12.312.3

24.924.9

24.324.3

11.911.9

49.349.3

66.866.8

8.58.5

30.530.5

40.640.6

31.031.0

16.416.4

41.941.9

40.440.4

87.387.3

19.019.0

87.387.3

32.432.4

25.525.5

11.711.7

36.736.7

7.07.0

3.8

0.9

3.3

1.9

6.2

3.3

16.716.7

7.0

2.8

8.58.5

0.5

Measures to reduce burdens of divisions with people that take Child Care

Leave among other things

Approval of bringing children into the office

Adjustments in the amount, placement and division of work

Installation of teleworking and satellite offices

Flexibility in working hours and flextime

Permission to leave early or be late to work for sending and picking up children

Reduction of overtime work and holiday work

Reduction of working hours

Re-employment of people that retired on the occasion of childbirth

Child care leave system

System set up and actually being used System set up, but not being used too often

System not set up, but being dealt with flexibly System not set up, nor is there flexibility

9.99.9

11.011.0

11.611.6

22.922.9

9.19.1

8.98.9

13.713.7

14.814.8

13.213.2

24.324.3

32.832.8

24.224.2

54.254.2

19.719.7

40.940.9

52.252.2

48.148.1

45.045.0

44.744.7

28.228.2

59.459.4

70.670.6

34.334.3

75.275.2

43.143.1

29.029.0

27.227.2

28.528.5

36.536.5

24.624.6

2.9

1.8

4.7

1.26.96.9

5.6

4.9

3.46.86.8

3.9


100%0%100%0%

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on the Application of Human Resources in Enterprises Activities (November 2008).


39) Yet,asforLawsconcerningtheWelfareoftheLaborerthatDealswithChildCareorFamilyCaresuchastheChildCareLeaveorFamilyCareLeave(ChildCareandFamilyCareLeaveLaw),withthenotificationofthelaborer,achildcareleavecanbesecureduntilthechildreaches1 year of age (in some circumstances, 1 year and six months). Additionally, business owners are not to treat laborers disadvantageously such as by dismissing them, for the reason that they have requested or have secured a child care leave.


236

large enterprises. In addition, looking at how much the application of these measures have progressed in the last three years or so, while there are advancements seen in the “child care leave system” and the “reduction of

working hours,” in both large enterprises and SMEs, the “permission to leave early or be late to work” appears to be further advanced within SMEs compared to large enterprises(Fig.3-5-19).

An SME that employs women through teleworking and other systems3-5-3

Ohnest Co., Ltd of Kitakyushu City, Fukuoka Pre-fecture, with a workforce of 49 and capital of ¥35 million, is an information systems company that specializes in the creation of industrial information systems that control and provide other functions for production facilities of factories. The company was established in 1999 by the current president who has experience working as a technician as well as a technical manager for a major company, and desired to realize new ways of offering information system creation services that fulfilled the needs he had felt during his years as a technician.

As for the business world of industrial informa-tion systems, major hardware manufacturers have extended into the fields of hardware, software and engineering, with each of the manufacturers providing original products and services. With this in mind, the company creates the most suitable

system for its clients at a low cost by combining products according to the needs of the client, such as industrial information systems-related hardware and software that are provided by different manu-facturers (industrial computer system integration).

In order to handle these various systems, sophis-ticated developmental skills become crucial. Thus, the company focuses on personnel training with the particular aim of applying the exceptional abili-ties held by the women employees. To start with, in terms of wages, an outcome-based compensation system has been set up where there are no differ-ences between male and female employees, and increases in the salary of an employee is based on the increase in the number of systems and other functions that the employee can handle. More-over, the company elevates employee motivation through the reimbursement of self-enlightenment

Case

Fig. 3-5-19 Measures implemented for women’s employment that have progressed compared to the last three years or soProgress can be seen within the measures such as the “child care leave system,” the “permission to leave early or be late to work for dropping off and picking up children,” and the “reduction of working hours” in SMEs


Notes: 1. Excludes “no responses.” 2. Due to multiple responses, the total exceeds 100.

1.0 1.5 3.6

32.2

1.3

23.5

6.72.5

80.5

7.7

31.8

14.4

7.2

17.9 17.9

38.3

14.2

31.1

22.6

15.5

0

10

20

30

40

50

60

70

80

90

100SMEsLarge enterprises(%)

Child

car

e lea

ve sy

stem

Re-e

mpl

oym

ent o

f

peo

ple

that

retir

ed

in th

e oc

casio

n o

f chi

ldbi

rth

Redu

ction

of

wor

king

hour

s

Redu

ction

of

ove

rtim

e wo

rk

and

holi

day w

ork

Perm

ission

to le

ave

ear

ly or

be

late

to

wor

k fo

r sen

ding

and

pick

ing

up c

hild

ren

Flexib

ility i

n wo

rkin

g

hou

rs a

nd fl

extim

eIn

stall

ation

of t

elewo

rkin

g

and

sate

llite

offic

es

Adju

stm

ents

in

the

amou

nt, p

lacem

ent

and

divi

sion

of w

ork

Appr

oval

of b

ringi

ng

chi

ldre

n in

to th

e of

fice

Mea

sure

s to

redu

ce

bur

dens

of d

ivisio

ns

with

peo

ple

that

take

Chi

ld C

are

Leav

e

am

ong

othe

r thi

ngs


237

Section 5

Following this, regarding the aforementioned systems, asking female permanent employees with children who are in elementary school or younger whether the systems are “systems that they want to use,” and “systems that they can actually use or have actually used” (hereinafter referred to as “usable systems”) and looking at the gap between the responses to these questions, it can be seen that the gap is widening concerning measures such as “flexibility in working hours and flextime” and “re-employment of

thosethathadpreviouslyretiredforchildbirth”(Fig.3-5-20).Similarly,Fig.3-5-21shows themeasures thathadlarge gaps between the opinions of what was thought to be effective by the enterprises and employees, comparing large enterprises and SMEs. Among the SMEs and the SME employees, for measures such as the “child care leave system” or “flexibility in working hours and flex-time,” enterprises tend to not deem them as effective as employees believe them to be.40) Especially in regards to

for improving one’s ability.With a relatively high percentage (approximately

40%) of its permanent employees being women, the company puts effort into child care support by offering telework according to the needs of the employee. Use of the company’s telework system is permitted once it is deemed to be efficient in performing tasks, after the employee declares the day that he/she wishes to work at home (3 days

maximum per period, no limit to the number of periods), as well as the planned work details beforehand. Furthermore, striving to create an environment that makes work and life compatible for employees, the company puts effort to support them such as by partially reimbursing the costs of computers that will be necessary for teleworking, in case the employee does not own one.

Fig. 3-5-20 The gap concerning the measures needed in order to have women work while raising childrenA high percentage of women of SMEs with children who are in elementary school or below think that “flexibility in working hours and flextime,” and “re-employment of people that retired in the occasion of childbirth” are important

-12.1

29.1

24.1

20.622.0

15.6

6.1

21.320.0

14.1

19.7

28.3

19.2

10.4

16.013.914.2

8.511.3

7.8

-15

-10

-5

0

5

10

15

20

25

30

35Large enterprises SMEs(%)

Child

car

e lea

ve sy

stem

Re-e

mpl

oym

ent o

f

peo

ple

that

retir

ed

in th

e oc

casio

n o

f chi

ldbi

rth

Redu

ction

of

wor

king

hour

s

Redu

ction

of

ove

rtim

e wo

rk

and

holi

day w

ork

Perm

ission

to le

ave

ear

ly or

be

late

to

wor

k fo

r sen

ding

and

pick

ing

up c

hild

ren

Flexib

ility i

n wo

rkin

g

hou

rs a

nd fl

extim

eIn

stall

ation

of t

elewo

rkin

g

and

sate

llite

offic

es

Adju

stm

ents

in

the

amou

nt, p

lacem

ent

and

divi

sion

of w

ork

Appr

oval

of b

ringi

ng

chi

ldre

n in

to th

e of

fice

Mea

sure

s to

redu

ce

bur

dens

of d

ivisio

ns

with

peo

ple

that

take

chi

ld c

are

leave

am

ong

othe

r thi

ngs

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Questionnaire Survey on Worker-friendly Workplace Environments (November 2008).

Notes: 1. Statistics based only on female employees of 54 years or below with children who are in elementary school or below. 2. The “gap” refers to the percentage within each of the sample numbers derived from subtracting “systems that they

think they can actually use, or have actually used” from “systems that they want to use.”

40) SeeAppendednote3-5-1forotheritems.


238

the “child care leave system,” given that not many enter-prises are implementing this system, there is a possibility that it is not considered as an effective measure even if a company is implementing it.

Additionally, concerning women working as perma-nent employees while raising children, a high percentage of both large enterprises and SMEs raise “increase in risks including sudden absence or being late to tend to

sickchildren”ascausesofconcern(Fig.3-5-22).Ontheother hand, from the employees’ perspective, for female non-permanent employees that currently have children who are in elementary school or younger, the percentage of those that “do not want to become permanent employ-ees in the future,” regardless of company size, is approxi-mately 25%. As for reasons, a high number of them are related to work hours, such as opinions that it is “easier to

Fig. 3-5-22 Sources of anxiety among women working as permanent employees while raising childrenRegardless of workforce size, enterprises see “suddenly being absent or being late to work” as a source of anxiety



26.9 28.3

34.4

13.7

27.4

3.33.0 2.4

58.1

2.4

19.7

27.8

1.4 1.4

55.2

14.618.1

12.5

29.0 27.8

9.3

24.8

0

10

20

30

40

50

60

70


Nece

ssity

in re

visin

g

eac

h in

divid

uals’

way

s o

f wor

king

Nece

ssity

in re

visin

g

dut

ies o

f divi

sions

in o

vera

llDi

fficu

lty in

ask

ing

for o

verti

me

work

Incr

ease

d bu

rden

to o

ther

em

ploy

ees

Incr

ease

d di

fficu

lty

in m

anag

emen

t

of t

he w

ork

plac

eIn

crea

se in

cos

ts

nec

essa

ry fo

r

syst

em p

lanni

ngIn

crea

se in

dut

ies

nec

essa

ry fo

r

syst

em p

lanni

ng

Diffi

culty

in

secu

ring

subs

titut

esIn

crea

se in

risk

s

inclu

ding

sudd

en ab

senc

e

or b

eing

late

to te

nd

to si

ck c

hild

ren Ot

hers

No sp

ecifi

c an

xiety

Fig. 3-5-21 The gap between enterprises and employees concerning measures that are effective in allowing women to continue working as permanent employees while raising children (top 5 items)There is a large gap concerning the “child care leave system” and “flexibility in working hours and flextime” in SMEs


No. 1 Permission to leave early or be late to work for sending and picking up children (47.5) Child care leave system (46.8)

No. 2 Reduction of overtime work and holiday work (46.7) Flexibility in working hours and flextime (42.1)

No. 3 Flexibility in working hours and flextime (42.6) Permission to leave early or be late to work for sending and picking up children (40.0)

No. 4 Adjustments in the amount, placement and division of work (38.4) Installation of teleworking and satellite offices (38.1)

No. 5 Installation of teleworking and satellite offices (38.4) Re-employment of people that retired in the occasion of childbirth (37.7)


Notes: 1. In regards to each of the measures, the top 5 measures are lined up according to the difference seen between the percentage of which the employees believe to be effective, and the percentage of which the enterprises believe to be effective. The numbers in the brackets show the difference in the percentage between employees and enterprises.

2. Excludes “no responses.” 3. Statistics for employees based only on female permanent employees of 54 years or below with children who are in

elementary school or below. 4. As for other items, see Appended note 3-5-1.


239

Section 5

balance matters at home,” or “being able to work in hours convenient to one’s self,” or “being able to work fewer hoursanddays(Fig.3-5-23,Fig.3-5-24).

Up to here, while there may be a gradual progres-sion, from the perspective of employees and enterprises concerning the measures being taken for women to work while raising children, the possibility of a gap can still be observed between the enterprises and employees. Asking enterprises that are actually taking measures for child care support about such measures’ effectiveness, the enterprises believe that “securing and keeping capable personnel,” “increasing employees’ motivation” and “increasing the retention rate of regular employees” are effective measures (Fig. 3-5-25). Additionally, lookingat the profits of enterprises that are both taking and not taking measures, it can be seen that enterprises that are taking measures are inclined to secure more profits (Fig. 3-5-26). Even for companies that have yet to progressin the application of such measures, it would be ideal to consider their application actively, not only through the view that it would respond to the social demands for women’s employment, but also through the consideration of the possibility that it would lead to the increased sales of the company by securing capable personnel as well as boosting the motivation of its employees.

Fig. 3-5-23 Percentage of female non-permanent employees that desire to become permanent employeesRegardless of enterprise scale or whether one has children or not, approximately 25% of female non-permanent employees “do not want to work as a permanent employee”

0102030405060708090

100

(%)

Want to work as a permanent employee

Do not want to work as a permanent employee

Cannot say either/Not sure

37.337.3

38.838.8

23.923.9 25.125.1

33.833.8

41.141.1 43.343.3 39.539.5

28.928.9

32.532.5 31.631.6

24.224.2

Large

enter

prise

s

(with

child

ren w

ho ar

e

in el

emen

tary s

choo

l

or be

low)

SMEs

(with

child

ren

who

are i

n elem

entar

y

scho

ol or

below

)

Large

enter

prise

s

(with

out c

hildre

n

who

are i

n elem

entar

y

scho

ol or

below

)

SMEs

(with

out c

hildre

n

who

are i

n elem

entar

y

scho

ol or

below

)


Note: Statistics based only on female non-permanent employees of 54 years or below.

Fig. 3-5-24 Reasons why people do not want to work as permanent employeesAs for employees with children who are in elementary school or below, a high percentage of them believe it “enables one to balance personal situations”

3.1

25.019.8 19.814.6

79.2

1.09.4

43.8

15.6 15.66.3 9.4

56.3

68.8

12.5

71.9

15.69.411.5

46.9

6.3

57.3

72.9

21.913.5

17.7

7.30

20

40

60

80

100(%) Large enterprises SMEs

37.9

24.131.0

10.3 13.8

27.631.0 31.0

51.7

6.9

34.527.6

17.2 20.7

3.410.9

34.5

12.7 16.49.1

14.5

54.563.6

21.8

47.3

25.5 23.6

7.3 3.60

20

40

60

80

100(%)

The

belie

f tha

t the

re a

re n

o c

ompa

nies

that

will

hire

me

as

a pe

rman

ent e

mpl

oyee

Not e

noug

h co

nfid

ence

in b

eing

abl

e to

phy

sica

lly k

eep

up w

ith b

eing

a p

erm

anen

t em

ploy

ee

Not e

noug

h co

nfid

ence

in p

osse

ssin

g th

e ab

ility

to b

eing

a p

erm

anen

t em

ploy

ee

Desi

re to

dea

l with

wor

k th

at is

sim

ple

and

with

out

muc

h re

spon

sibi

lity

Desi

re to

wor

k in

a p

lace

that

allo

ws

for s

peci

aliz

ed q

ualif

icat

ions

and

ski

lls

Redu

ced

inco

me

afte

r tax

es w

hen

wor

king

as

a p

erm

anen

t em

ploy

ee

Do n

ot w

ant t

o be

tied

dow

n in

to a

n or

gani

zatio

n

Desi

re to

wor

k w

ithin

few

er w

orki

ng d

ays

and

sho

rter w

orki

ng h

ours

Desi

re to

wor

k in

hou

rs th

at a

re c

onve

nien

t

Desi

re to

mak

e a

djus

tmen

ts in

wor

k

Enab

les

one

to b

alan

ce p

erso

nal s

ituat

ions

Enab

les

one

to b

alan

ce o

ther

act

iviti

es

Desi

re to

wor

k in

a p

lace

whe

re c

omm

ute

is s

hort

Poss

ible

inco

nven

ienc

e of

bei

ng tr

ansf

erre

d el

sew

here

Othe

r

[1] W

ith c

hild

ren

who

are

in e

lem

enta

ry s

choo

l or

bel

ow[2

] With

out

child

ren

who

are

in e

lem

enta

ry s

choo

l or

bel

ow


Notes: 1. Statistics based only on female non-permanent employees of 54 years or below that answered “I do not want to work as a permanent employee.”



240

(4) Child care leave for male employeesOn the other hand, looking at male employees, the

rate of childcare leave for men remains low, as can be observedfromtheresultsoftheMHLW’sFY2007 Basic Survey of Gender Equality in Employment Management inFig.3-5-27.However,despitethelowrate,comparedtolarge enterprises, the rate of men taking childcare leave in SMEs is higher, hinting that SMEs possibly provide more opportunities for male permanent employees to participate in child care. Additionally, the participation of male employees in child care is expected to reduce the female employees’ burden of child care and will lead to the SMEs’ employment of women. Therefore, following this will be an analysis of male employees’ participation in childcare.

Firstofall,Fig.3-5-28showsacomparisonof“sys-tems that male permanent employees want to use” and “systems usable for male permanent employees,” of the child care support systems provided by enterprises. According to this, a high rate of male permanent employ-ees of SMEs show interest in using the “child care leave system” or the permission to leave early or be late to work

Fig. 3-5-25 Effects of measures being taken for women that are working while raising childrenRegardless of workforce size, a high percentage of enterprises raise the “securing and keeping capable personnel” as the effects


Notes: 1. Excludes enterprises that chose “no responses” and “not taking specific measures.” 2. Due to multiple responses, the total exceeds 100.

61.1

7.9

42.438.9

18.2

7.4

1.5 2.0

8.1 8.3

15.9

0.9

5.0

19.415.8

52.2

28.225.6

0

10

20

30

40

50

60

70Large enterprises SMEs(%)

Secu

ring

and

keep

ing

cap

able

pers

onne

l

Incr

ease

of p

rodu

ctivi

ty

Incr

ease

rete

ntion

rate

of r

egul

ar e

mpl

oyee

s

Enha

nce

the

repu

tatio

n

of t

he c

ompa

ny

Incr

ease

rete

ntion

rate

of p

art-t

ime

work

ers

and

oth

ers

Cont

ribut

e to

the

deve

lopm

ent

of n

ew p

rodu

cts

Othe

rs

No sp

ecifi

c ef

fect

s

Incr

ease

em

ploy

ees’

mot

ivatio

n

Fig. 3-5-26 Relation between profits and implementation of measures for women to work while raising children in SMEsSMEs that are taking measures for women to work while raising children are more likely to be in the black



9.09.0

SMEs that are not taking specific

measures

SMEs that are taking measures for women

to work while raising children

Big surplus Some surplus Breaking even

Some deficit Big deficit

8.48.4 45.945.9 19.119.1 17.617.6

6.36.3 38.738.7 21.421.4 21.221.2 12.412.4

100%0%


241

Section 5

forsendingandpickingupchildren.Ontheotherhand,looking at the “usable systems,” we can see that while the “child care leave system” is thought to be usable, as for the other systems, we can see that there is a difference between the situation of people wanting to use them, and the circumstances that prevent them from doing so.41) In addition,Fig.3-5-29showsthemeasuresconsideredtobecrucial for men to take their childcare leave, through the perspective of both the enterprises and employees.

Regardless of enterprise size, measures such as “strong support and encouragement from the manage-ment class,” “awareness reforms within the managers” and “awareness reforms of employees” are all believed tobeequallyessentialbyenterprises.Ontheonehand,while not a small percentage of SME employees that believe “awareness reforms of employees” is crucial, a higher percentage believes that it is the changes within the management class, such as the “strong support and encouragement from the management class” as well as the “awareness reforms within the managers,” that are important. Moreover, in SMEs, another characteristic is that there is a widening gap between the employees and enterprises in terms of “making the systems known,” and thus it can be considered that in order to promote the taking of childcare leave for men, the aforementioned measures are crucial.

Fig. 3-5-27 Percentage of men taking child care leave (by employee size)As for men, the smaller the scale of the work place, the higher rate they take child care leave

8.8

2.4 0.6 0.7

65.3

87.693.3 94.0

0

10

20

30

40

50

60

70

80

90

100

5-29 people

30-99 people

100-499 people

500 people or above

(%) Male Female

Source: MHLW, FY2007 Basic Survey of Gender Equality Employment Management (October 2007).

Notes: 1. Child care leave taking rate = People that have taken child care leave at the point of the survey (including those who have applied in advance / the number of those who gave birth (as for men, those whose partners gave birth) within the year previous to the survey.

2. “Employee size” refers to “employee size at the establishment.”

41) AswasseeninFig.3-5-27,fromthefactthatthepercentageofmenthatobtainchildcareleaveislow,regardlessoflargeenterprisesandSMEs, it is assumed that current conditions are not allowing men to secure their child care leave, despite the fact that they know it is obtain-able, and that they want it.

An SME that has taken child care leave for male permanent employees3-5-4

Yoshimura Kanrodou Co., Ltd. of Ono City, Fukui Prefecture, with a workforce of 80 and capital of ¥43 million, is an SME that deals with the production and sales of rice cracker snacks by developing its own “Yoshimura Okaki” brand mainly in Fukui Prefecture. The company also is an OEM (Original Equipment Manufacturing) firm of a major manufacturer. The company is devoted to the development of new brands, and has started up the health-oriented new brand “KANRODO” in November 2008. Especially in regards to develop-ment of the “sprouted brown rice crackers with GABA” series (which is a part of the “KANRODO” brand) that restricts its source of ingredients to purely Fukui rice, it has been given approval based on METI’s “Program to Promote SME Utilization of Regional Resources.”

The company actively takes measures to support its employees in achieving a balance between work and life, and in 2008, two of its male permanent

Case

employees obtained child care leave – a first among the company’s male employees. Previously within the company there were quite a number of occasions during busy times where overtime work as well as holiday work was required, which was seen as a cause for the drop in motivation among its employees and also for the high dissatisfaction of the employees’ families. Against this backdrop, the company found that in order to improve work efficiency it is crucial that families are content. Thus, with the consent of its employees, the com-pany decided to take measures to balance work and life. Specifically, the cutting back of working hours through the reduction of its OEM sector, re-employment of retired workers, and efforts to balance out employment between permanent and part-time employees are taken, together with securing child care leave for both its male and female employees as a part of such measures.

During the period of the above-mentioned


242

Fig. 3-5-28 Child care support systems that male permanent employees want to use, and child care support systems usable for or used by male permanent employeesWithin SMEs, while there are many male permanent employees that have desire to use child care support systems, there are few systems that are believed to be usable

28.833.1

46.0

23.3

15.3 12.916.7

22.1

38.7

12.3

21.5 19.6

40.8

22.9 22.1

30.927.5

12.2 12.59.6

0

10

20

30

40

50

60


50.9

11.0

25.219.6

25.2

33.1

3.1

22.1

1.2 3.72.8 3.7

33.1

8.213.9 15.6 17.3

14.2 15.0

2.30

10

20

30

40

50

60

(%)

(%)

[1] S

yste

ms

empl

oyee

s w

ant t

o us

e

Child

car

e le

ave

syst

em

Re-e

mpl

oym

ent o

f peo

ple

that

retir

ed o

n th

e oc

casi

on o

f chi

ldbi

rth

Redu

ctio

n of

wor

king

hou

rs

Redu

ctio

n of

ove

rtim

e w

ork

and

hol

iday

wor

k

Perm

issi

on to

leav

e ea

rly o

r b

e la

te to

wor

k fo

r sen

ding

and

pic

king

up

child

ren

Flex

ibili

ty in

wor

king

hou

rs a

nd fl

extim

e

Inst

alla

tion

of te

lew

orki

ng a

nd s

atel

lite

offic

es

Adju

stm

ents

in th

e am

ount

, p

lace

men

t and

div

isio

n o

f wor

k

Appr

oval

of b

ringi

ng c

hild

ren

into

the

offic

e

Mea

sure

s to

redu

ce b

urde

ns o

f div

isio

ns w

ith p

eopl

e th

at ta

ke c

hild

car

e le

ave

amon

g ot

her t

hing

s

[2] S

yste

ms

usab

le o

r use

d be

fore


Notes: 1. Statistics based only on male permanent employees of 54 years or below. 2. Due to multiple responses, the total exceeds 100.

child care leave (which lasts about 10 to 20 days) obtained by the male permanent employee, the company dealt with it by dividing duties between assistant personnel summoned from departments other than that of the male employee who had obtained child care leave. Well received by the male permanent employees who had obtained the child care leave, the childcare leave system is seen as an opportunity that “allows them to once more real-ize the difficulty of child rearing as well as the pre-ciousness of children.” The company aims to further spread the system by having the employee present to other employees their thoughts, comments and other feelings after returning from leave.

Additionally, in order for the employees who have completed child rearing and therefore have fewer opportunities to take child care leave to not see the situation as unfair, the “Memorial Holiday” system has been set up. This system enables the employee to obtain a holiday by having them declare beforehand their personal memorial days, such as birthdays (of family members, or of the employee) and wedding anniversaries.

Through these measures, the company aims to create a fulfilling work environment that enables the employees to achieve a balance between work and life.


243

Section 5

Fig. 3-5-29 Measures considered crucial for men to take their child care leaveMale SME employees think that “strong support and encouragement from the management class” and “awareness reforms within the managers” are important

53.5

60.6

52.6

18.8

34.7

13.1

19.2

9.42.8

15.0 16.419.7

29.6

19.7

3.6

21.4

2.36.6

35.131.2

35.5

6.2

19.8

4.6

11.8

5.31.1

5.2

15.710.7

20.3

11.2

0

0

10

20

30

40

50

60

70


65.6

57.7

49.7

22.711.0

22.1 32.527.6

1.2 1.7

59.5

36.2

20.917.8

31.3

20.9

8.0

65.4

53.3

42.2

27.5

42.8

14.4

22.1

14.7

7.9

20.1

21.8

20.4 21.8 21.8

9.3

20

40

60

50

30

10

70

(%)

(%)

[1] E

nter

pris

es[2

] Em

plo

yees

Stro

ng s

uppo

rt an

d en

cour

agem

ent

from

the

man

agem

ent c

lass

Awar

enes

s re

form

s w

ithin

the

man

ager

s

Awar

enes

s re

form

s of

em

ploy

ees

The

man

agem

ent c

lass

taki

ng in

itiat

ive

in u

sing

the

syst

ems

Diss

emin

atin

g th

e sy

stem

s

Prov

idin

g in

form

atio

n s

uch

as in

form

atio

n on

favo

rabl

e ca

ses

Secu

ring

subs

titut

e pe

rson

nel

suc

h as

thro

ugh

the

resh

uffli

ng o

f per

sonn

el

Secu

ring

subs

titut

e pe

rson

nel

suc

h as

thro

ugh

empl

oym

ent o

f dis

patc

hed

wor

kers

Alle

viat

ing

the

sale

s an

d ot

her g

oals

of

div

isio

ns w

ith th

ose

taki

ng a

leav

e

Clar

ifyin

g th

e pe

rson

nel e

valu

atio

n m

etho

ds o

f tho

se th

at h

ave

take

n a

leav

e

Wag

e sy

stem

s ba

sed

on th

e ev

alua

tion

of p

erfo

rman

ce, r

athe

r tha

n th

e le

ngth

of w

orki

ng h

ours

or w

heth

er o

ne h

as o

btai

ned

a le

ave

or n

ot

Pers

onne

l sys

tem

s ba

sed

on th

e ev

alua

tion

of p

erfo

rman

ce, r

athe

r tha

n th

e le

ngth

of w

orki

ng h

ours

or w

heth

er o

ne h

as o

btai

ned

a le

ave

or n

ot

Unde

rsta

ndin

g an

d co

oper

atio

n w

ithin

the

divi

sion

by

shar

ing

the

wor

k of

thos

e in

leav

e

Revi

sing

the

over

all w

ays

of w

orki

ng,

whi

le s

ettin

g th

e id

ea o

f bal

ance

as

a pr

emis

e

Othe

rs

No s

peci

fic m

easu

res

thou

ght t

o be

nec

essa

ry


Notes: 1. Excludes “no responses.” 2. Statistics based only on male permanent employees of 54 years or below, who have children who are in elementary

school or below. 3. Due to multiple responses, the total exceeds 100.


244

3. Employment of the elderly

(1) The conditions of the employment of the elderlyThe work life balance of the elderly who want to be

employed longer and stay active throughout life, similar to those of women that have finished raising their children, can become a revision over the ways of working, in the sense of increasing the proportion of work in the overall balance. As was mentioned in Section 1 of this chapter, with the population decreasing and aging in Japan, having elderly that desire to work demonstrate their experiences and abilities that they have accumulated throughout the years is an extremely important issue from the perspective of both sustaining and boosting the economic vitality of Japan.Ontheotherhand,Fig.3-5-30showstheemploy-ment rate according to age using the MIC’s Employment Status Survey. While the employment rate is changing at a high rate between the ages of 20 years and 59 years, a large drop can be seen once it hits 60 years or older. Additionally, looking at the active opening rate according

to age class, it can be seen that the active opening rate hits its lowest point around the 60-64 years age class (Fig. 3-5-31).With that said, it isdesirable to see theelderlyfurther being active.

(2) Awareness regarding the employment of elderly employees

So, what are the thoughts of the elderly employees who providelabortoenterprisesonemployment?Fig.3-5-32shows the age that employees want to continue to work until as well as the retirement age set by enterprises using the Questionnaire Survey on Workplace Environment and the Questionnaire Survey on Application of Human Resources. According to this figure, while the highest percentage of employees desire to work until the age of 65, the highest percentage of enterprises set 60 years or younger as the retirement age. In addition, looking at the difference between large enterprises and SMEs, it can be seen that more than a small percentage of SMEs do not set a retirement age.

An SME that takes measures in supporting the achievement of a work life balance as part of securing personnel3-5-5

Toyo Co., Ltd. of Hida City, Gifu Prefecture, with a workforce of 85 and capital of ¥30 million, is an SME that deals with the manufacture and sale of interior wood material aimed for houses such as door frames and sash frames. With increasing needs including great varieties, small quantities and tight deadlines from the clients, the company is taking measures to improve the factory and make it multi-functional by altering the factory layout as well as revising the manufacturing process. The company also puts effort into personnel training and has been selected for the “1,400 Enterprises Creating Employment” list (see Column 3-1-1). In 2007, the company saw a male permanent employee obtain child care leave for the first time.

The company had seen its female permanent employees obtain child care leave before, but in 2007, for the first time, its male permanent employee took child care leave for a total of ten days. As a matter of fact, before the male employee managed to obtain his leave, child care leave was believed to be something that women obtained for a long period of time, such as six months to a year. However, the child care leave for male permanent employees was realized when it became apparent that at the time a male permanent employee is taking his child care leave, he has the choice of not only taking long-term leave but also a short-term one of a couple of days. The perspective among

the male permanent employees has changed, and it is thought that the child care leave system can be applied since seeing a male permanent employee take his child care leave. Additionally, in order to improve the environment that allows for a woman who is currently raising children to continue work-ing while child rearing, the company has extended the short work hours under the child rearing sys-tem for them until their children enter elementary school. Such measures are taken so that one can keep working for a long time without worrying.

The company also sees the measures taken to achieve a balance of work and life through the application of child care leave and other measures as crucial from the perspective of securing person-nel. The company, as part of securing its personnel, has been recruiting throughout Japan for approxi-mately 10 years, and is taking measures to recruit those coming from outside the region. Through this hiring process, the company is sensing a very high interest among candidates toward whether or not there are measures being taken in order to achieve a balance of work and life. With SMEs that are limited in business resources, the financial burden of having to take measures to achieve the balance of life and work is not small. However, the company will continue to make substantial efforts in the future for regional SMEs to secure excep-tional personnel from all over Japan.

Case


245

Section 5

Fig. 3-5-30 Employment rate (by age)Compared to 55-59 years, the employment rate of those of 60 years of age or above greatly decreases

Source: MIC, Employment Status Survey.Note: The employment rate refers to the percentage of

those engaged in work among the total number.

55.052.3

57.9

0

10

20

30

40

50

60

70

80

90

100

15-1

9 ye

ars

20-2

4 ye

ars

25-2

9 ye

ars

30-3

4 ye

ars

35-3

9 ye

ars

40-4

4 ye

ars

45-4

9 ye

ars

50-5

4 ye

ars

55-5

9 ye

ars

60-6

4 ye

ars

65-6

9 ye

ars

70-7

4 ye

ars

75 ye

ars o

r abo

ve

(%) 1997 2002 2007

Fig. 3-5-31 Active opening rate according to age (2008)The active opening rate is the lowest at the 60-64 years age class

Source: MHLW, Report on Employment Service.

0.84

0.91

0.88

0.89 0.89

0.85

0.80

0.78

0.79 0.80

0.84

0.77

0.70

0.75

0.80

0.85

0.90

0.95

(Times)

Tota

l19

year

s or b

elow

20-2

4 ye

ars

25-2

9 ye

ars

30-3

4 ye

ars

35-3

9 ye

ars

40-4

4 ye

ars

45-4

9 ye

ars

50-5

4 ye

ars

55-5

9 ye

ars

60-6

4 ye

ars

65 ye

ars o

r abo

ve

Fig. 3-5-32 The difference between the retirement age of enterprises and the age that employees want to work untilThere is a difference between the retirement age of enterprises and the age that employees want to continue to work until


Notes: 1. Excludes “no responses” and “not sure.” 2. Statistics based only on permanent employees of 55 years or above.

86.0

5.60.9 1.4 0.5

5.10.5

9.91.4 2.3 0.4

22.7

1.3

14.7

47.2

0

20

40

60

80

100(%)

(%)

25.7

1.0 4.0 3.0 3.0

48.5

11.93.02.1 1.0

5.2 2.1

50.0

19.8

7.312.5

0

20

40

60

80

100


60 years or below 61 years 62 years 63 years 64 years 65 years 66 years or above

No retirement age (enterprises)/ Want to continue working

throughout life (employee)

[1] R

etire

men

t age

set

by

ente

rpris

es[2

] The

age

that

em

ploy

ees

wan

t to

cont

inue

to w

ork

until


246

Following this, looking at the systems that are set up by companies for elderly employees, regardless of enterprise size, “re-employment” remains the highest in percentage for employees. In addition, while the majority of large enterprises have set up “re-employment,” there are more than a few SMEs that have set up systems such as “extending employment” or “extending the retirement age”(Fig.3-5-33).42) Additionally, looking at the ratio of permanent employees according to age through the MIC’s Employment Status Survey, the permanent employee ratio of the 55 years or older range within SMEs surpasses that of large enterprises. Thus, it can be seen that SMEs are likely, at a higher percentage, to employ the elderly as permanentemployees(Fig.3-5-34).

Lookingat the employment awarenessof thepeoplethat have not worked since retiring, through the MIC’s

Employment Status Survey,itcanbeobservedthat14.3%of the people desire to work for income (Fig. 3-5-35).Regarding some of the reasons why they want to work, according to the figure, while most responded that it is “for maintaining health,” more than a few thought that there was “a necessity to earn an income.” Additionally, according to the MIC’s “FY2007 Annual Report on Fam-ily Income and Expenditure Survey (household budget/income and expenditure),” as for working households out of total households with a head that is of 65 years or above, disposable income surpasses private consumption, while as for the households without jobs out of the said total households, disposable income is less than private consumption. Hence, it can be seen that earning an income becomes a motive for the elderly to work43) (Fig. 3-5-36).

An SME that employs elderly employees without setting up a mandatory retirement age3-5-6

Established in 1924, Nishijima Co., Ltd. of Toyo-hashi City, Aichi Prefecture, with a workforce of 140 and capital of ¥60 million, is a manufacturer of special machine tools with more than 80 years of history within the industry. Possessing high technical skills, the company produces with the whole process from the designing after receiving orders, procuring materials to assembling them all in house.

Declaring “Forever dynamic, forever active” as one of its management philosophies, the company has not set up a mandatory retirement age and employees can keep working regularly as long as they desire. In terms of wages, as the salary system switches from seniority-based to result-based after a certain amount of time, it is possible even for an elderly employee to earn the top salary at the company depending on their abilities. Rather than decreasing employees’ motivation as a result of the mandatory retirement system, the company hopes to see employees’ skills develop further by allowing for the use of the techniques and experiences that they have accumulated throughout their years of

employment.To show appreciation for the employees who

have long contributed to the company, the “50 Years of Continuous Work Award” was set up in 2007. One 66-year-old employee (serving 50 years) and two 73-year-olds (serving 56 years and 57 years, respectively) were applicable at the time the system was established, and they were the recipi-ents of awards in addition to gifts.

On the other hand, the company also focuses on the recruiting and training of younger personnel, as it is crucial to have years of experience in the workplace in order to acquire skills and techniques. With this, the age range between the younger and elderly employees is significantly broad. Therefore, hoping to smooth relations between the youth and the elderly, certain arrangements are being made, such as appointing relatively young employ-ees in management positions. The company has been succeeding in building systems that have all employees, including the young and the elderly, work together in manufacturing through such management efforts.

Case

42) With the revision of the Act on Stabilization of Employment of Elderly Persons in 2004, from April 1, 2006, owners of establishments that havesettheagebelow65yearsastheretirementage,inordertosecurestableemploymentsoftheelderlyupto65yearsofage(but63yearsofage,untilMarch31,2010),musttakemeasuresinsecuringtheemploymentoftheelderly,suchasthrough“raisingtheretirementage,”“the Continuous Employment System” (“Employment Extension System” as well as the “Re-employment System”), or the “discontinuance ofsettingaretirementage.”Therefore,inenterprisesthatsettheirretirementageatbelow63yearsofage,asshowninFig.3-5-32,thereisahighpossibilitythatsuchmeasuresinsecuringemploymentsaretaken,atleastuntiltheageof63years.

43) However,whenlookingattheMIC’s“FY2007 Annual Report on Family Income and Expenditure Survey (savings and liabilities),” attention must be paid to the fact that there is not much of a difference between the average savings amount of working households of two or more, with household heads who are 65 years or above, which is ¥24.45 million, and of households of two or more without jobs with household heads whoare65yearsorabove,whichis¥23.67million.


247

Section 5

Fig. 3-5-33 Employment systems that are introduced by enterprises for the elderly and employment systems that employees would like to use, or have usedWhile many large enterprises have brought in “re-employment,” SMEs are dealing flexibly through systems such as “employment extension” and “extending the retirement age”


Notes: 1. Excludes “no responses.” 2. Statistics based only on permanent employees that are of 55 years or above. 3. “Employment extension” refers to the system of “continuing to employ someone that has reached the retirement age,

without immediately forcing retirement.” “Re-employment” refers to a system that “re-employing someone that has reached the retirement, after making this said person retire once.”


9.30.5

13.0

88.8

3.7 0.9 1.4

16.4

3.0

20.5

49.3

0.5 1.1

23.0

0

20

40

60

80

100

(%)

(%)

22.3

4.9 9.7

37.9

8.7 3.9

26.215.5

7.818.4

34.0

1.0

35.0

0

20

40

60

80

100


[1] S

yste

ms

that

ent

erpr

ises

are

taki

ng in

[2] S

yste

ms

that

em

ploy

ees

wou

ld li

ke to

use

, or h

ave

used

Extending the retirement age

Discontinuing the retirement age

Extendingemployment

Re-employment Early retirement system

Others Nothing specific done (enterprises)/

There is nothing specific being done

(employee)

Fig. 3-5-34 The ratio of permanent employees according to scale and age (2007)The percentage of elderly permanent employees is higher in SMEs

Source: Recompiled from MIC, FY2007 Employment Status Survey.Notes: 1. Permanent employees refers to “regular staff and employees” in the above survey. 2. Non-permanent employees refers to “employees at companies and other organizations excluding executives” other




63.5

47.2

71.9

72.366.4

52.1

11.5

62.9 50.6

73.0

68.565.6 56.7

37.4

0

10

20

30

40

50

60

70

80

90

100


Total 15-24 years 25-34 years 35-44 years 45-54 years 55-64 years 65 years or above


248

(3) The employment of the elderly by SMEsFollowing this will be a look at what kinds of measures

are being taken concerning the employment of the elderly by enterprises that hire employees.

First of all, Fig. 3-5-37 shows the conditions of themeasures being taken by enterprises regarding the employment of the elderly based on the Questionnaire Survey on Application of Human Resources. According to this, while there may be some differences between both large enterprises and SMEs, measures such as the “reduction and flexibility in working hours,” or “adjust-ments in the amount, placement and division of work” are somewhat systemized. However, many are not, and

therefore, they are compensated through being dealt with flexibly. Comparing the conditions of the measures being taken to that of three years ago, measures such as “reduction and flexibility in working hours” as well as “adjustments in the amount, placement and division of work”havebeenprogressing(Fig.3-5-38).Ontheotherhand, a high percentage of employees believe that the aforementioned measures are important, and in this view, it can be said that there is less of a difference between the enterprises and employees. There are more than a few employees that believe it is crucial to reconstruct and develop job posts in order to employ the elderly. However, these aforementioned measures are relatively not taken

Fig. 3-5-35 The percentage of retired employees that have reached the retirement age and desire to work, and their reasonsOf the retired employees that have reached the retirement age, 14.3% desire to work even after retiring

Wants to work for income

(14.3%)

Of those that answered “for maintaining health” (29.3%)

Of those that answered for the “necessity to earn an income” (16.2%)

Of those that answered that they “had free time” (13.6%)

Of those that answered that they “want to use their knowledge and skills” (12.7%)

Of those that answered that they are “out of a job” (7.6%)

Of those that answered that they “want to be out in the society” (6.1%)

Of those that answered “others” (14.4%)

Does not want to work for income, unknown

(85.7%)

Does not want to work for income, unknown

(85.7%)

[1] Would like to work for something that brings in income [2] Of those, the reason for having desire to work

Source: Recompiled from MIC, 2007 Employment Status Survey.Note: Statistics based on those that retired from their previous job due to the retirement age out of the total number not

engaged in work.

Fig. 3-5-36 Income and expenditure of households of which the household head is of 65 years or aboveIn households without work for the elderly, real expenditure surpasses real income

(Unit: Yen)

Working households out of all households Households without work out of all households

Total Households of which the household head is of 65 years or above Total Households of which the household

head is of 65 year or above

Income 480,074 354,243 179,589 187,208

Expenditure 367,779 323,735 230,362 227,752Consumption expenditure 289,821 277,474 206,224 203,567 Non-consumption expenditure 77,958 46,260 24,138 24,185

Disposable income (=Real income – non-consumption expenditure) 402,116 307,983 155,451 163,023

Surplus(=Income – expenditure =disposable income –consumption expenditure)

112,294 30,509 -50,773 -40,544

Source: MIC, 2007 Annual Report on Family Income and Expenditure Survey (household budget/income and expenditure).Note: The income and expenditure of the above refers to the income and expenditure within a month in one household (2007

average).


249

Section 5

Fig. 3-5-37 Conditions of the measures being taken by enterprises regarding the employment of the elderlyWhile the systems may not be as varied as for large enterprises, many SMEs deal with it flexibly

Improving the working methods/work facilities

Educational training for the development

of new work areas

Restructuring and developing duties


Reduction and flexibility of working hours

3.1

The system is prepared and is actually being used The system is prepared, but is not being used too much

No system nor flexibilityThe system is not prepared but is dealt with flexibly

11.911.9

11.111.1

25.125.1

35.535.5

10.110.1

10.010.0

13.713.7

49.049.0

38.038.0

50.050.0

55.055.0

32.232.2

32.432.4

49.049.0

28.828.8

10.010.0

18.518.5

11.711.7

15.715.7

57.757.7

40.640.6

50.250.2

62.862.8

55.555.5

29.629.6

50.850.8

39.539.5

19.519.5

21.421.4

8.78.7

4.3

6.76.7

5.95.9

6.16.1

4.4

7.57.5

5.45.4

5.45.47.37.3

100%0% 100%0%




Fig. 3-5-38 Measures for the employment of the elderly that have progressed in the last three years and measures which employees believe to be essentialAs for “restructuring and developing duties” as well as “educational training for the development of new work areas,” there is a large difference between the enterprises and employees

53.4 51.7

16.7

2.9

16.7

47.4

56.3

5.2 4.4

32.5

0

10

20

30

40

50

60

(%)

51.554.4

36.9

17.5

27.2

52.457.3

25.2

12.6

26.2

0

10

20

30

40

50

60

(%)


[1] M

easu

res

that

hav

e pr

ogre

ssed

with

in th

e en

terp

rises

[2] M

easu

res

whi

ch e

mpl

oyee

s b

elie

ve to

be

esse

ntia

l

Reduction and flexibility of working hours


Restructuring and developing duties

Educational training for the development of new work areas

Improving the working methods/work facilities


Notes: 1. Statistics based only on permanent employees of 55 years or above. 2. Due to multiple responses, the total exceeds 100.


250

in within enterprises, and therefore, it is crucial that enterprises consider building up these types of measures in the future.

Lookingattheissueswithintheprogressintheemploy-mentoftheelderly,basedonFig.3-5-39,whilethereareanumber of both large enterprise and SMEs that believe it “prevents the change in generation” as well as well as the fact that it “is too large in personnel expenditures,” many

SMEs also say that “there are no issues.” Fig. 3-5-40shows the relation between the rate of elderly employees in enterprises and profits, and it can be seen that enterprises that are balanced in the rate of elderly employees are inclined to have better profits.44) Even while considering the change in generations, it can be considered important to balance this with the employment of the elderly that have accumulated wisdom, technique and skills.

Fig. 3-5-39 Issues related to progress in the employment of the elderlyA high percentage of SMEs believe “there are no issues”



52.9

15.7

23.8

5.78.1 8.6

21.9

43.2

15.7

26.9

2.6 4.38.5

28.8

0

10

20

30

40

50

60


Prevents the change in generation

Delays revisions of work

Excess costs in personnel expenditures

Excess costs necessary in

structuring the system

Excess work necessary in

structuring the system

Others No specific issues

Fig. 3-5-40 Relationship between the percentage of older people (55 years or above) and profitThe revenue situation of enterprises that have a balanced proportion of older people working for them is relatively good

0% 100%

50% or above

30%-under 50%

10%-under 30%

1%-under 10%

0%


3.63.6

4.64.6

9.29.2

8.88.8

5.65.6

31.731.7

38.038.0

48.748.7

44.944.9

38.638.6

20.020.0

21.021.0

18.018.0

20.320.3

24.224.2

28.128.1

24.424.4

15.915.9

17.217.2

19.619.6

16.616.6

12.012.0

8.38.3

8.88.8

12.112.1



44) However,thisisnottosaythatthebestbalanceishavingbelow30-10%elderlyemployees.


251

Section 5

Issues as well as the measures to be taken for the employment of the elderly have been discussed up till now, but what kind of influences have this employment oftheelderlyhadonenterprises?LookingatFig.3-5-41,it can be seen that on one hand many SMEs believe it was effective in “securing and keeping capable person-nel” as well as “increase in employees’ motivation,” while there were more than a few enterprises that have reported the effects of “increased productivity.” Even by actually

looking at the recent profit trends of both enterprises that are taking measures for the employment of the elderly as well as those that are not, the enterprises that are taking the measures have a higher percentage of better profits. (Fig.3-5-42).Likethis,fortheenterprises,itisthoughttobe ideal to actively consider the employment of the elderly through the perspective that not only will the employment of the elderly secure workers, but it can also possibly lead to the profits of the company.

Fig. 3-5-41 The effects of the measures being taken for the employment of the elderlyMany SMEs believe they were effective in “securing and keeping capable personnel” as well as “boosting the motivation of their employees”


Notes: 1. Excludes enterprises that chose “no responses” and “not taking specific measures.” 2. Due to multiple responses, the total exceeds 100.

65.6

10.16.9 7.4

25.9

1.16.3

16.9

47.2

21.2

13.511.0

23.4

2.5 4.2

20.2

0

10

20

30

40

50

60

70


Securing and keeping capable

personnel

Increased retention rateof regular employees

Increase of productivity

Enhance the reputation of the company

Increase in employees’ motivation

Contribute to the development of new products

Others No specific effects

Fig. 3-5-42 Profit trends of enterprises that are or are not taking measures for the employment of the elderlyThe enterprises that are taking measures for the employment of the elderly are more likely to post surplus



SMEs that are not taking specific measures

SMEs that are taking measures for the employment

of the elderly


6.26.2

7.77.7

39.039.0

44.444.4

22.422.4

19.319.3

19.319.3

19.219.2

13.113.1

9.59.5

100%0%

252

This White Paper began with a reflection in Chapter 1 on the economic trends in fiscal 2008 that brought about a further deterioration of SME business conditions, and then focused on the theme of SME innovation in Chapter 2 and personnel in Chapter 3, based on the awarenessthat SMEs should find a way out of the difficult business environment, analyzing current situations and challenges concerning the development of new products and ser-vices and the recruitment and development of personnel in SMEs, as well as related matters. In concluding this report, future initiatives expected of SMEs in order for Japan to overcome the current recession and achieve far-reaching growth in the future will be analyzed consider-ing the major points drawn from each chapter.

Deterioration of SME business conditions amidst the global financial crisis

Chapter 1 showed how business and financing condi-tions for SMEs worsened drastically in the wake of the global financial crisis which started in the U.S. The resulting global economic slowdown rapidly deteriorated the business climate and employment picture in Japan mainly through a plunge in exports. In response to these situations, the government has devoted efforts for SME measures,including¥30trillioninSMEfinancing-relatedmeasures and remedies for subcontractors, which tend to be more vulnerable to decreases in sales. Nevertheless, there remains a profound uncertainty about the outlook of the Japanese economy, and a close watch needs to be kept on SME trends.

Creating and developing markets through innovation

What is needed of SMEs amidst these difficult eco-nomic situations? Joseph Alois Schumpeter, one of the prominent economists of the 20th century, repeatedly stressed the importance of the roles played by entre-preneurs who undertake new businesses, even during the 1930s when the Great Depression shook the globaleconomy. A recession can be perceived as an opportunity for the surplus resources in existing businesses to move into new growing areas through a dynamic process in which entrepreneurs find a new way to merge business resources to propel economic growth. To put it shortly, a crisis is a chance for entrepreneurs.

As seen in Chapter 2, Japan’s SMEs have realized their characteristic of innovation thanks to wisdom and tireless ingenuity exercised at the workplace, by fully exercising their creativity and mobility to develop new products and services sought by the market. Innovations at SMEs are not limited to advanced technological development

projects; they often integrate inspirations found in daily lives, ingenuity at workplaces, efforts to cast ideas into products and other diverse initiatives. SMEs thereby cre-ate half of the total added value produced by the Japanese economy and are indeed the source of Japan’s vitality.

Currently, as the global economy slows down and demands decrease both domestically and overseas, there is a possibility that people’s needs may have changed profoundly as they see a dip in their income and wealth. Ontheotherhand,therearelargepotentialneedsintheareas requiring response to emerging issues such as global warming, food safety and security, health and welfare ser-vices tailored to the increasing number of elderly, and these potential needs are increasing. Although there are some economic fluctuations, demand is presumed to increase in emerging economies such as Asian countries due to their expected medium- to long-term population increases.

Japan’s SMEs are expected to keep striving toward innovation upon accurately grasping changes in the envi-ronment and redrawing future visions accordingly. SMEs need to seek new ways to combine business resources, such as intellectual property, personnel and capital under the leadership of the management in order to develop and supply products and services that meet the needs of society.

Improving motivation and capabilities of personnel in SMEs

If one had to choose the most important challenge for SMEs keeping continuing innovation, it would be the improvement of motivation and capabilities of SME personnel.

AsseeninChapter3,SMEmanagersperceive“humanresources” as the most important management resource. Since SMEs employ 70% of the people working at Japa-nese companies, it is essential that employees at SMEs expand their added-value output for revitalizing the Japa-nese economy. When the management joins hands with the employees to take initiatives in work that fulfills the hearts of consumers and makes positive contributions to society, shares the sense of achievement in such work, and promotes employees’ career development in the process, SMEs will be able to increase their potential and express these potentials to the fullest extent. This will create a positive cycle in which the joy of working in SMEs is increased further.

As we face this once-in-a-century crisis, we would like to conclude the report by expressing our expectation that SME proprietors and employees will unite their efforts in seeking to create new value, thereby becoming the driv-ing force for the Japanese economy to carve out a new era of growth.

ConclusionFinding vitality through innovation and human resources

SME policies planned for fiscal 2009

254

This section gives only a broad outline of program content and spending.Details are subject to change.


255

Contents

Chapter 1 Flexible response to sudden changes in environment ................................................ 256

Section 1 Financial measures ..................................................................................... 256

Section 2 Measures for subcontractors ..................................................................... 256

Section 3 Measures concerning public demands ...................................................... 257

Section 4 Measures to stabilize business .................................................................. 257

Chapter 2 Measures to improve management base ..................................................................... 258

Section 1 Support for business rehabilitation ............................................................ 258

Section 2 Facilitating business succession ................................................................ 259

Section 3 Policies on human resources, employment, and social welfare ................ 259

Section 4 Promoting a low-carbon society ................................................................ 261

Section 5 Promoting the adoption of IT ..................................................................... 261

Section 6 Other measures .......................................................................................... 262

Chapter 3 Support for challenges in new areas............................................................................ 262

Section 1 Promoting new business activities ............................................................. 262

Section 2 Support for developing overseas markets ................................................. 264

Section 3 Assistance for startups and venture companies ....................................... 265

Section 4 Promoting technological innovation ........................................................... 266

Section 5 Measures on intellectual property.............................................................. 267

Chapter 4 Promoting collaborative organizations of small enterprises ........................................ 268

Section 1 Measures for small enterprises .................................................................. 268

Section 2 Measures for collaborative organizations .................................................. 268

Section 3 Measures for commerce and shopping districts ....................................... 269

Chapter 5 Industry-specific measures for SMEs .......................................................................... 271

Section 1 Measures for SMEs in the agriculture, forestry and fisheries industries ... 271

Section 2 Measures for SMEs in the transport industry ............................................ 273

Section 3 Measures for small and medium building contractors .............................. 273

Section 4 Measures for small and medium realtors ................................................... 274

Section 5 Measures for the environmental sanitation business ................................ 274

Section 6 Measures for SMEs in tourist industry ....................................................... 275

Section 7 Measures for the development of traditional crafts industries .................. 275

Chapter 6 Other measures for SMEs ............................................................................................ 275

Section 1 Promotion of human rights awareness ...................................................... 275

Section 2 Measures for SMEs in Okinawa ................................................................. 275

Section 3 Promotion of surveys and public information activities ............................. 276

256

Chapter 1 Flexible response to sudden changes in environment

Section 1 Financial measures

Section 2 Measures for subcontractors

Given the economic uncertainties that are expected to continue in fiscal 2009, support will be continued for small and medium enterprises (hereinafter referred to as “SME”) facing such financial difficulties through the steady implementation of safety-net finances such as emergency guarantees and safety-net loans.

Additionally, in response to the change in the economic situation, business conditions, credit risks, etc. of individ-ual SMEs will be assessed properly, and flexible types of guarantees and loans will be encouraged to reduce over-dependence on real estate mortgages or guarantees, while precisely grasping the new funding needs of SMEs. To be specific, guarantees and loans based on inventories and accounts receivable as collateral will be encouraged, as well as early conversion of accounts receivable into cash. In addition, high-risk financing will be provided actively for companies that are starting new businesses or engaged in restructuring, in the form of subordinated loans that help improve their financial standing by serving as long-term and stable funds. Furthermore, the SME Agency will cooperate with the Financial Services Agency (FSA) in order to smooth out the SME finances within private financial institutions.

[Specific measures]

(1) Enhancing safety-net financesEmergency guarantees and safety-net loans will be

steadily provided. In regards to the emergency guarantee

system, the targeted industries will be reviewed while taking the economic situation into consideration (Con-tinuation).

(2) Promoting the guarantee system for securities backed by movable assets

The guarantee system for securities backed by movable assets will continue to be implemented in order to further facilitate the financing process (Continuation).

(3) Promoting the support to convert accounts receivable into cash at an early stage

In response to the trend of decreasing bill distributions, measures will be continued in order to convert accounts receivable into cash at an early stage, and thereby facilitate the SME finances hinged on the trust between enterprises (Continuation).

(4) Promoting subordinated loansFor enterprises that are starting new companies and

businesses, subordinated loans will continue to be pro-vided in order to facilitate the procurement of funds from private financial institutions (Continuation).

(5) Promoting SMEs’ finances by private financial institutions in cooperation with the FSA

Together with the FSA, the SME Agency will continue to request private financial institutions to smooth out SME finances (Continuation).

Given that the trade environment surrounding subcon-tractors is expected to remain extremely difficult going forward, theLawon thePreventionof theDelay in thePayment of Subcontracting Charges and Related Matters (hereinafterreferredtoas“SubcontractingChargesLaw”)will continue to be implemented in a strict manner during fiscal 2009. Specifically, measures including (1) document investigations on a scale greater than that of the last fiscal year, (2) special investigations toward enterprises that are habitualoffendersand(3)chargingmeasuresagainstseri-ous offences will be actively implemented.

Additionally, in order to prevent violations of the Sub-contractingChargesLaw,seminarsaimedtowardparententerprises and other organizations will be held, along with the continued effort to spread the Guidelines for the Pro-motion of Fair Subcontracting Practices. The consultation

system at the 48 subcontracting help centers across Japan that were set up last fiscal year will be strengthened, based on the manual compilation of the various consultation cases related to subcontracting transactions during fiscal 2008. Also, the legal consultation services will be pro-vided throughout the year.

Furthermore, in order to not exclude SMEs from busi-ness opportunities, the target for public procurements from SMEs will be set, and this will be thoroughly publicized as a policy.

Othermeasuresaimedtorevitalizesmallandmediumsubcontractors include providing ordering and receiving information to those seeking new trading partners and running projects such as market development assistance through business meetings.


257

[Specific measures]

(1) Stricter enforcement of the Subcontracting Charges Law

While continuing document investigations and on-the-spot inspections based on the Subcontracting Charges Law, special investigations toward enterprises that arehabitual offenders will be actively implemented, and charges will be made against serious offences in a proac-tive manner (Continuation).

(2) Strengthening the consultation system, and spreading proper subcontracting trade

The consultation services and the explanations of the Guidelines will continue to be carried out at the subcon-tracting help centers set up throughout Japan. In addition, courses and other events will be held for those in charge of material procurement in parent enterprises, and other organizations as well as the management class of large enterprises (Continuation).

(3) Revitalizing small and medium subcontractorsTo revitalize small and medium subcontractors, the

following projects will be implemented.(i) Market development assistance through trade media-

tion and business meetingsBusiness matching stations will provide ordering and

receiving information to small and medium subcontrac-tors seeking new trade partners. Additionally, emergency large-area business meetings will be held in order to support their efforts to develop new, wider sales networks (Continuation).(ii) Request for consideration towards subcontracting

businesses and othersIn order to strengthen the business base of small and

medium subcontractors, people will be notified of the general criteria that should be observed by subcontractors and parent enterprises alike, at fair subcontracting trade courses and other events (Continuation).

Securing opportunities for SMEs to win orders from the government ministries remains a crucial issue. Therefore, the SME Agency will formulate the Fiscal 2009 Policy on State Contracts with Small and Medium Enterprises in cooperation with related ministries and agencies. In addi-tion, local governments will be requested to take necessary measures in accordance with national policies.

[Specific measures]

(1) Formulating the Fiscal 2009 Policy on State Contracts with Small and Medium Enterprises

The target rate for contracts with SMEs will continue to be set (Continuation).

(2) Various requests to expand business opportunities for SMEs

Efforts will continue to thoroughly notify SMEs of the measures to expand opportunities for SMEs to win public bids (Continuation).

With the business environment of SMEs expected to remaindifficult,theOrganizationforSmallandMediumEnterprises and Regional Innovation (hereinafter referred to as “SMRJ”) will continue seeking the stability of SME businesses by steadily promoting and operating the Sys-tem on Mutual Relief System for the Prevention of Bank-ruptcies of Small and Medium Enterprises and the Small Enterprise Mutual Relief System during fiscal 2009.

Furthermore, support will be provided for the smooth operation of the consultation services at the special busi-ness stability advice centers (set up within major chambers of commerce and industry, and the prefectural federations or societies of commerce and industry), to provide solu-tions to various issues pertaining to the business of SMEs that are facing management crises. In addition, BCP will be disseminated for minimum interruption and early restoration of business in times of emergencies, such as

natural disasters, and low-interest loans will be provided for the development and maintenance of disaster-preven-tion facilities based on BCP.

[Specific measures]

(1) Mutual Relief System for the Prevention of Bankruptcies of Small and Medium Enterprises (Mutual Safety-net Relief System)

Relief projects based on the Law on Mutual ReliefSystem for the Prevention of Bankruptcies of Small and Medium Enterprises will be continued in order to prevent chain-reaction bankruptcies resulting from the bankruptcy of a trading partner (Continuation).

(2) Mutual Relief System for Small EnterprisesBasedontheLawonMutualReliefSystemforSmall

Section 3 Measures concerning public demands

Section 4 Measures to stabilize business

258

The prospect for recovery from severe business condi-tions for SMEs remains uncertain, and there is substantial concern that conditions may become more unfavorable going forward. As such, support for business rehabilita-tion of SMEs will be further strengthened as one of the measures of utmost importance in fiscal 2009. For that, additional recruitment for the SME Revitalization Sup-port Councils and increased allowance for covering due diligence costs are included in the fiscal 2009 budget.

Also, increased support will be provided for rehabili-tation efforts through the “successor company” method, which has been recently attracting attention as one method of business rehabilitation. The successor company method refers to a method of corporate restructuring in which another company inherits a whole or part of the company’s business, either through demerger or business transfer, and thereby having a “successor company” continue said busi-ness operations. Among SMEs that struggle to continue businesses saddled by excessive debt burdens, there are cases in which business can be continued if their financial conditions are improved by debt reduction or other meth-ods. The successor company method is perceived as an innovative method for business regeneration which allows the company to shred debts and unprofitable divisions in the process of business succession.

As such, the successor company method enables drastic debt reduction. However, in order to apply this method, the company must overcome three challenges: (i) reacquiring authorization and license; (ii) procuring a large amount of funds; and (iii) paying a succession tax. These require-ments present a large burden on SMEs in the phase of rehabilitation. As a result, some companies fail to adopt the method and end up filing for bankruptcy as a whole.

In this light, (i) exception to allow carry-over of autho-rization and license, (ii) financial assistance, and (iii) tax reliefareincludedinthebilltorevisetheLawonSpecialMeasures for Industrial Revitalization submitted to the

171st ordinary Diet session. The law targets SMEs which try to overcome the three challenges toward business rehabilitation by formulating an SME Rehabilitation Plan through Succession. The three above kinds of assistance will be provided upon approval of the said Plan.

[Specific measures]

(1) Outline of assistance based on the Law on Special Measures for Industrial Revitalization

(i) Exception to allow carry-over of authorization and license

When inheriting a business according to the authorized SME Rehabilitation Plan through Succession, in case the original authorization and license inscribe the name of status which the said Plan stipulates as being especially conducive to smooth business rehabilitation, the successor company may also inherit the status written in the said authorization and license (New).(ii) Financial assistance

When activating the authorized SME Rehabilitation Plan through Succession, the following will be imple-mented: (i) doubling of the credit guarantee limit for the successor company; (ii) low-interest loans from the JFC for the successor company and its sponsors; and (iii) rais-ing of the upper limit for capitalization concerning the shareholding by the Small and Medium Business Invest-mentandConsultationCo.,Ltd.(New).(iii) Tax relief

When inheriting business according to the authorized SME Rehabilitation Plan through Succession, arising registration and license, and real-estate acquisition taxes will be alleviated (New).

(2) SME Revitalization Support Councils (fiscal 2009 budget: ¥4.97 billion)

Continued support will be provided for business

Enterprises, relief projects for sole proprietors of small enterprises or company executives will be continued to provide relief money to those that have gone out of busi-ness or changed jobs (Continuation).

(3) Special business stability advice centers (fiscal 2009 budget: ¥40 million)

Support will continue for guidance and other services run by the Japan Chamber of Commerce and Industry (JCCI) and the Central Federation of Societies of Com-merce and Industry, Japan (CFSCI) for smooth operation of the consultation services at the special business stability

advice centers (set up within major chambers of commerce and the prefectural federations of societies of commerce and industry) (Continuation).

(4) Promoting the dissemination of BCP among SMEs

The dissemination of BCP for SMEs will continue to be promoted. In addition, the Japan Finance Corporation (hereinafter referred to as “JFC”) will continue providing low-interest loans for the development and maintenance of the disaster-prevention facilities that goes along with the BCP set by the SMEs (Continuation).

Chapter 2 Measures to improve management base

Section 1 Support for business rehabilitation


259

rehabilitation of SMEs at the SME Revitalization Support Councils established within the prefectural chambers of commerce and industry, and others.

In particular, in fiscal 2009, assistance functions of the support councils will be reinforced by such means as expanding the budget for investigating financial and business structures and for covering fees paid to outside experts, thereby establishing a support system capable of immediate response for business rehabilitation of local SMEs and small enterprises.

Furthermore,upontherevisionoftheLawonSpecialMeasures for Industrial Revitalization, the prefectural SME Revitalization Support Councils will be exceptionally exempted from the obligation of confidentiality when pro-viding information to the SMRJ’s National Headquarters

for SME Revitalization Support. This will help the con-solidation of knowledge and know-how on business reha-bilitation build up within the SME Revitalization Support Councils nationwide. Meanwhile, experts at the National Headquarters for SME Revitalization Support will provide advice to the SME Revitalization Support Councils for further improvement of their capacity (Continuation).

(3) Regional SME revitalization fundsTo continue the effort for smooth cash management of

SMEs capable of rehabilitation, organization of nation-wide funds will be encouraged to assist rehabilitation of relatively large SMEs, in addition to the existing regional funds that target relatively small SMEs (Continuation).

In fiscal 2009, the SME Agency will implement pro-grams to match qualified job-seekers with SMEs seeking new recruits, as well as real work-related training pro-grams to upgrade skills of SME employees and develop work-ready personnel.

Other measures include subsidies for employment

adjustment, which will be provided for proprietors who are compelled to scale down business activities due to the change in economic environment or for other economic reasons but seek to maintain employment through paid holidays and external assignments, in order to keep down unemployment and stabilize employment.

Comprehensive support will be continued for business successionofSMEsthroughtheLawforSmoothBusinessSuccession at SMEs (hereinafter referred to as “Smooth BusinessSuccessionLaw”)establishedinMay2008andother policies.

For this, the tax burden (inheritance tax and gift tax), which is one of the major obstacles of business succession, will be drastically addressed with a system of extension for payment of inheritance and gift taxes on unlisted and other shares to be introduced by the Fiscal 2009 Tax Reform and operated jointly with the Smooth Business SuccessionLaw, inorder toguarantee a smootherbusi-ness succession process.

[Specific measures]

(1) Introduction of a system of extension for payment of inheritance and gift taxes on unlisted and other shares (taxation scheme)

Upon the Fiscal 2009 Tax Reform, the relief policy for inheritance tax imposed on unlisted and other shares will be significantly enhanced from the current 10% reduction to 80% payment extension, and its target will be expanded to cover all SMEs. Besides inheritance, an extension sys-tem will be established for payment of the gift tax in order to support business succession through lifetime transfers

of shares. If certain requirements are met, these inheri-tance and gift taxes will be granted exemptions (New).

(2) Program for supporting smooth business succession (SMRJ subsidy program)

Measures will be taken to build a network of adminis-trators for providing wide-ranging and high-level supports for business succession of SMEs across the nation, dis-seminate succession policies to SME managers through briefing sessions and other methods, and run the Business Succession Councils to consider the issue in a comprehen-sive manner (Continuation).

(3) Business succession support center (fiscal 2009 budget: included in ¥5.79 billion)

One-stop service will be continued at the businesssuccession support centers established in 102 locations nationwide in order to respond to problems arising in business succession (Continuation).

(4) Business succession loans (fiscal investment and loan program)

The JFC will continue providing finances for SME operators (company, company representative or sole proprietor) in need of funds for business succession (for buying shares, business assets, etc.) (Continuation).

Section 2 Facilitating business succession

Section 3 Policies on human resources, employment, and social welfare

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[Specific measures]

(1) Human resources programsTaking the recession phase as an opportunity for SMEs

to recruit outstanding personnel, matching programs will be continued to introduce job-seekers who may otherwise opt for larger companies to local SMEs, in tandem with “real work-related training” programs for dislocated workers and graduating students to acquire sector-specific knowledge and skills to meet the need of local SMEs (Continuation).

(2) Plan for active working post-retirement (Shingeneki challenge plan) (fiscal 2009 budget: ¥1.97 billion)

Support will be continued for post-retirement work-ers to utilize their techniques and know-how in SMEs (Continuation).

(3) Program to support manufacturing personnel in SMEs (fiscal 2009 budget: ¥380 million)

To ensure appropriate levels of human resources development and recruitment in SMEs, support will be provided to enhance real work-related education programs such as apprenticeships through the collaboration of the industrial sector, technical high schools, government, etc. of each region. Education initiatives will be taken, includ-ing briefings, for dissemination of the curriculum for training junior engineers in SMEs that use the facilities and educational know-how of the technical schools and other institutions (Continuation).

(4) Tax incentives for investments in personnel (taxation scheme)

The said tax incentive will continue with a view to accelerate personnel investment in SMEs (Continuation).

(5) Job café projectTo respond to rapidly worsening job prospects, sup-

port will be continued for fine-tuned job café services, including establishment of local outposts, as well as for multiregional matching events held by building networks of neighboring regions (Continuation).

(6) Initiative for the Asia Human Resource Fund (fiscal 2009 budget: ¥3.4 billion)

Seamless support will be continued, including schol-arships and employment support, for capable and highly motivated foreign students who seek jobs in Japanese companies (Continuation).

(7) Program for the Industry-Academia Partnership for Human Resource Development (fiscal 2009 budget: ¥1.51 billion)

Human resources development programs will continue to be developed, tested, etc. through industry-academia collaboration, based on the outcome of consideration in

the Industry-Academia Partnership for Human Resource Development. In fiscal 2009, demonstrations will be held and independent operations will be implemented for the said programs developed in fiscal 2008 as adopted proj-ects, while adopting new projects of a wider horizon that promise to link multiple universities and other institutions in the region (Continuation).

(8) Program for developing a system of nurturing and evaluating private coordinators for career education (fiscal 2009 budget: ¥120 million)

The program will be continued for nurturing and evalu-ating coordinators who link schools to companies, with a view to realizing integrated regional career education, including real-work experience at local SMEs, that utilizes ideas and experience of the private sector (Continuation).

(9) Human resource development program at the Institute for Small Business Management and Technology (SMRJ subsidy program)

Training programs for improving the capacity of SME supporters will be continued at the Institute for Small Business Management and Technology, in tandem with other training programs including seminars for SME managers (Continuation).

(10) Loan program for addressing declining birthrates (fiscal investment and loan program)

The scheme for the JFC to provide long-term fixed-rate loans for SME proprietors seeking to develop a day-care center for children within the business establishment will be continued (Continuation).

(11) Support for generating employment opportunities through vibrant SMEs

Active support will be provided based on the Small and Medium Enterprise Labor Force Recruitment Lawfor vibrant SMEs to recruit and develop more personnel and make their workplaces more attractive by promoting their business start-ups, diversification, and improvement of productivity, in order to generate sound employment opportunities (Continuation).

(12) Measures for maintaining employment (fiscal 2009 budget: ¥2.7 billion)

Subsidies for employment adjustment will be provided for proprietors who are compelled to scale down business activities due to the change in economic environment or for other economic reasons but seek to maintain employ-ment through paid holidays and external assignments, in order to keep down unemployment and stabilize employ-ment (Emergency Employment Stability Subsidy System for Small and Medium Enterprises) (Continuation).


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(13) Regional employment measuresIn order to support additional employment generation

in industries crucial for regional job creation, the SME Startup Subsidy for Regional Revitalization (for startup

costs and hiring costs) will be provided to the proprietors starting businesses in the said industries in regions with sluggish employment recovery prospects (Continuation).

In fiscal 2009, the SME Agency will work on develop-ing an underlying system for SaaS (software as a service) on the Internet that can be used by SMEs to streamline work in a simple, low-cost manner, as well as applications and other software that run on systems for sales and client management, and for filing national tax returns, social security, and other public documentations.

Also, the IT Management Support Team program will

be continued while implementing projects for promoting the Regional Innovation Partnership (RIP) to strengthen ties between IT users and vendors in regions in need of IT.

Furthermore, for steady promotion of RIP, support will be provided for collaboration projects of regional IT vendors in an endeavor to strengthen necessary IT supply capacities.

Continued from fiscal 2008, in fiscal 2009 the SME Agency will encourage companies to introduce energy-saving facilities and other measures in order to step up energy conservation measures among SMEs, particularly in sectors where energy consumption continues to increase. Priority will be given for assisting cost-effective projects, such as introduction of high-performance industrial fur-naces, and other facilities and machinery that are expected to dramatically reduce energy use, and initiatives of great political significance.

Furthermore, subsidies will be provided to cover a part of the cost for private enterprises to introduce the latest facilities run by new energies. Also, effort for expanding the use of new energies by SMEs will be continued by relaxing requirements on the targeted facilities.

Othermeasurestobetakenincludecharge-freedocu-mentation assistance for SMEs and others for compiling emissions reduction action plans in order to spur emis-sions reduction among SMEs expected to benefit from the domestic credit system as well as in a broad range of areas including agriculture, forestry and service industries.

[Specific measures]

(1) Program for promoting the introduction of energy-saving measures (fiscal 2009 budget: ¥1.25 billion)

Diagnosis program on the feasibility of introducing energy-saving technologies and facilities will be conducted in tandem with briefings and other similar measures. Meanwhile, support will be strengthened for introducing energy-saving facilities among SMEs utilizing the Energy ServiceCompany(ESCO)Projects(Continuation).

(2) Offsetting Credit (J-VER) Scheme (fiscal 2009 budget: about ¥1.37 billion)

The SME Agency will seek further increases of

emissions reduction project applications in order to pro-mote greenhouse gas (GHG) emissions reductions among those SMEs which have not formulated a voluntary action plan and are slow to step up emissions reduction as well as in a broad range of sectors such as agriculture and forestry. Specific measures include charge-free documentation assistance for SMEs for compiling emissions reduction action plans like “free energy-saving diagnosis,” subsidy for examination fees, subsidy or JFC loans for introducing latest emissions reducing facilities (Continuation).

(3) Environment & Energy Measure Loans (for anti-pollution measures) (fiscal investment and loan program)

The JFC will continue providing low-interest loans to promote anti-pollution measures by SME proprietors (Continuation).

(4) Environment & Energy Measure Loans (for new energy/energy-saving and other facilities) (fiscal investment and loan program)

The JFC will continue providing low-interest loans to encourage the introduction of alternative energies and facilities with high energy-saving performance among SMEs. In fiscal 2009, loans at reduced rates will be provided by the Micro Business and Individual Unit for smaller businesses to accelerate introduction of new ener-gies, in addition to the SME Unit. Interest on loans for introducing energy-saving facilities will also be lowered (Continuation).

(5) Anti-pollution tax system (taxation scheme)The aforementioned tax system will be continued to

support SMEs’ anti-pollution efforts (Continuation).

Section 4 Promoting a low-carbon society

Section 5 Promoting the adoption of IT

262

In fiscal 2009, the SME Agency will continue its efforts to provide venues nationwide for matching Japan’s manufacturers, which possess excellent technologies, and people working in agriculture, forestry and fisheries, in order to create new businesses that can generate innova-tion. As such, it will continue to actively support efforts for creative business development including development of new products and services that utilize managerial

resources of SMEs and local resources, and work to mul-tiply new businesses that are internationally competitive, centering on collaboration between agriculture, commerce and industry.

For this, it will be important to support the development of sales channels for new products and services developed by new businesses. Therefore, a hands-on support system will be implemented that prioritizes market development

[Specific measures]

(1) Regional Innovation Partnership (fiscal 2009 budget: included in ¥610 million)

RIP will continue to be promoted for sustainable development of IT infrastructure tailored to the reality of the SMEs and other enterprises in the region, and for revitalization of the regional economies through the use of IT (Continuation).

(2) Program to develop IT infrastructure for regional economy (fiscal 2009 budget: ¥200 million)

Support will be given to the regional IT vendor asso-ciations working to strengthen the basis (capacity for development and technical support) needed for providing advanced IT services (New).

(3) Program for developing a platform for SME management innovation (fiscal 2009 budget: ¥1.76 billion)

Efforts will continue towards development of an under-lying system for SaaS, as well as applications that run on systems for sales and client management, social security applications, and other purposes (Continuation).

(4) IT Management Support Team (fiscal 2009 budget: included in ¥610 million)

Continued encouragement will be given for inde-pendent efforts by SMEs and other enterprises through

public-private networks of the IT Management Support Team to improve competitiveness by effective use of IT (Continuation).

(5) Collaboration program of IT and financial sectors for supporting management of small enterprises (fiscal 2009 budget: ¥270 million)

IT system for supporting management will be built for small enterprises to strengthen their fund-raising capac-ity needed for improving productivity and management (Continuation).

(6) Loan scheme for IT investments by government-affiliated financial institutions (IT fund) (fiscal investment and loan program)

The JFC will continue providing loans to help SMEs respond to environmental changes induced by the spread and innovation of IT and digital contents (Continuation).

(7) IT infrastructure tax system for industrial competitiveness (taxation scheme)

The aforementioned tax system will be continued for reinforcing IT infrastructure while ensuring information security (Continuation).

(8) Support for strategic IT adoptionSupport will be continued for the lease of IT equipment

by designated companies at favorable rates in order to pro-mote strategic IT adoption by SMEs (Continuation).

[Specific measures]

(1) Dispatch of experts and consultation services by the Regional SME Support Centers (SMRJ subsidy program)

Dispatch of experts and consultation services will

continue at each branch of the SMRJ (Continuation).

Section 6 Other measures

Chapter 3 Support for challenges in new areas

Section 1 Promoting new business activities


263

and will host exhibitions and business meetings nation-wide to further improve the quality of new products.

[Specific measures]

(1) Support for promoting agricultural-commercial-industrial collaborations (fiscal 2009 budget: ¥15.53 billion)

To realize regional revitalization through the promo-tion of collaborations between agriculture, commerce and industry, the SME Agency will further enhance various support programs for local SMEs and other enterprises including basic technological development, promotion of new business development, development of sales channels inside and outside Japan for local specialties, and advisory service by experts (Continuation).

(2) Program to promote SME utilization of regional resources (fiscal 2009 budget: ¥11.27 billion)

Comprehensive support will continue to be extended for SMEs which work to develop and commercialize new product and services by utilizing local resources, with the target set to create 1,000 new businesses over five years by fiscal 2011 (Continuation).

(3) Program for facilitating new business activities (new partnership/regional resources/collaborations between agriculture, commerce and industry) (fiscal 2009 budget: ¥6.02 billion)

Support will be given for SMEs working on the follow-ing initiatives to develop new products and services, and their sales channels: collaboration between agriculture, commerce and industry for promoting organic interac-tions between people working in agriculture, forestry and fisheries, and small and medium commercial and industrial businesses; development of local resources for promoting effective use of technologies, produce, tour-ism resources, and other industrial resources unique to the region; and new partnerships and other interactions for promoting collaboration among SMEs of different sectors and industries (New).

(4) Support for market development through various exhibitions and business meetings

The SME Agency will host exhibitions and business meetings via the “See and Feel the Appeals of Regions” campaign and others to introduce little-known local specialties with commercial potential as well as products and services developed through collaborations between agriculture, commerce and industry, and by utilizing local resources. This will provide opportunities for con-sumers and distributors in the Tokyo metropolitan area and other major cities to get “in touch” with these prod-ucts. While working to improve their quality, SMEs will continue to promote regional economic revitalization by

developing and expanding markets nationwide for these products (Continuation).

(5) Program for identifying collaboration projects for agriculture, commerce and industry

Support will continue for new business develop-ment by hosting matching events between SMEs with outstanding manufacturing technologies and people in agriculture, forestry and fisheries who support the com-munity. About 20 matching events are scheduled in fiscal 2009 (Continuation).

(6) Fund in support of SMEs working on collaborations between agriculture, commerce and industry

Continued support will be given to the efforts of the SMRJ in conjunction with prefectural governments and regional financial organizations to support startups, busi-ness innovation, etc. through collaborations between agri-culture, commerce and industry, and to revitalize regional economies (Continuation).

(7) Regional SME Support Fund ProgramContinued support will be given to the efforts of the

SMRJ in conjunction with prefectural governments and regional financial organizations to support startups and new business development of regional SMEs, and to revi-talize regional economies (Continuation).

(8) Market-oriented, hands-on support (fiscal 2009 budget: ¥2.08 billion)

Experts knowledgeable in marketing and other related areas will be posted in the support center of each regional bloc to provide consistent and detailed support for SMEs and other enterprises developing new businesses. In fiscal 2009, priority will be given to strengthening support for developing sales channels (Continuation).

(9) Marketing coordinator program (SMRJ subsidy program)

Some SMEs find difficulty in developing sales channels on their own despite having excellent new products, tech-nologies and services due to a lack of a foothold to access broader markets such as at the national level. Experts with experience working at trading companies and other firms will act as marketing coordinators to introduce them, their products, etc. to trading and other companies, and continue supporting their market access (Continuation).

(10) Regional innovation R&D program (fiscal 2009 budget: ¥6.51 billion)

Efforts will continue for practical application of newly developed technologies by research bodies combining regional resources including companies, universities, public experimental and research institutes, etc. in an optimal way, with priority given to collaborations between agriculture, commerce and industry, in order to revitalize

264

regional economies by developing new businesses and industries (Continuation).

(11) Program for forming a community for regional innovation (fiscal 2009 budget: ¥880 million)

A system will be developed for regional research institutions and other organizations to work jointly and provide one-stop solutions to companies tackling techni-cal problems. In fiscal 2009, support service by experts (coordinators) and others will be strengthened to provide technical consultation for companies (Continuation).

(12) Promoting regional corporate locationIn fiscal 2009, extensions will be granted for special

depreciation allowance for capital investment pursuant to the Law concerning Establishing Regional IndustrialClusters and Strengthening Them by Promoting Invest-mentandInnovation(hereinafterthe“CorporateLocationPromotionLaw”),andcompaniesmanufacturingceram-ics, stone and clay products will also benefit from the same allowance. Other efforts to promote corporate locationwill also continue, including enterprise zoning, human resources development, support for shared facilities, and low-interest loans (Continuation).

The domestic market is expected to shrink in the future due to the falling birthrate and the aging population. These concerns are compounded by increased uncertainty regarding the global market since the second half of 2008. Against this background, the SME Agency will combine its efforts with the Japan External Trade Organization(JETRO), the SMRJ, and other related organizationsto continue full-fledged support for SMEs working to develop and expand sales channels in developing overseas markets including Asian economies. In doing so, the SME Agency will aim to promote overseas operations support in terms of information, human resources and financing and to develop business environments for SMEs to operate smoothly after entering the new markets.

Specifically, for export assistance program, signifi-cantly more overseas coordinators will be recruited and dispatched elsewhere in fiscal 2009 to reinforce matching support and information services (collection and provi-sion) on overseas markets. Also, a national bureau will be launched for establishing the JAPAN Brand and to strategically support its overseas marketing down to sales channel development. Export strategy producers will be playing a central role in strategic promotion such as communication and publicity, as well as in presentation to overseas trade shows, matching activities with buyers and other activities.

Furthermore, SMEs starting or expanding businesses overseas will receive longer-term and more stable loans enabled by expanding eligibility and the use of funds.

[Specific measures]

(1) Program for supporting strategic development of the JAPAN Brand (fiscal 2009 budget: ¥1.31 billion)

Comprehensive support will be provided toward estab-lishment of the JAPAN Brand, stepwise from the creation to the development of the brand. In fiscal 2009, priority will be given to communication and publicity toward overseas markets and presentation to overseas trade shows and other opportunities, targeting about 100 assistance

cases (New).

(2) Overseas operation assistance for SMEs by JETRO (fiscal 2009 budget: ¥2.63 billion)

JETROwillimplementthefollowingprogramstosup-port SMEs’ overseas operations:(i) Export assistance program for SMEs

Support will continue to be provided for presenting local products and other items at exhibitions and similar events held around the world and for other activities that help them access the global market. In fiscal 2009, recruit-ment and dispatch of overseas coordinators will be largely increased, and they will provide detailed assistance including information sharing before and after business meetings, and follow-ups. Other measures for exportassistance targeting emerging and other overseas markets include dispatch of missions for studying the local market, exchanging views with local staff, providing opportunities for matching and business meetings so as to find clues for developing sales channels, and identification and selection of promising products and various advice services by experts posted across Japan (Continuation).(ii) Programs for assisting SMEs’ overseas development

Assistance will be continued, including strategic dispatch of missions, enhancement of one-stop support capacities in the local markets, development of business environments, and information and advice service on management challenges that require expertise, such as legal systems, taxation and labor matters, among other measures, in order to accelerate SMEs’ business operations in emerging markets and other areas (Continuation).(iii) Program for strengthening overseas industrial col-

laboration for SMEsJETRO will adopt industry-based exchange projects

across Japan to set up exchange events and business meet-ings with foreign companies, in addition to holding semi-nars, workshops and other events to assist Japanese SMEs’ startup and other initiatives overseas (Continuation).(iv) OverseasinformationsharingprogramforSMEs

JETROwillprovideSMEswithknow-howonoverseasoperations, outcomes of collecting and analyzing data and

Section 2 Support for developing overseas markets


265

other services in relation to overseas trade, which can serve as a base for other assistance projects. It will also compile failure cases among export assistance projects for local products, and use them in seminars and individual trade consultations (Continuation).

(3) Support for SMEs’ overseas operations by the SMRJ (fiscal 2009 budget: ¥100 million)

Workshops will be held and information will be sorted and offered from the perspective of assisting busi-ness operations in order to help SMEs internationalize smoothly. The SMRJ will also work on communicating the significance of Japanese SMEs’ operation for the host countries so as to encourage them to develop business environments. This will be emphasized through inter-national conferences and by building SME networks, in addition to gathering information about overseas opera-tion by Japanese companies (Continuation).

(4) Support for SMEs’ overseas operation by the JCCI (fiscal 2009 budget: ¥50 million)

Through six chambers of commerce and industry located overseas, the JCCI will continue addressing the problems faced by SMEs operating overseas through hearings, surveys and consultation services for finding solutions, in addition to requesting local governments and other organizations to address such problems (Con-tinuation).

(5) Exemption of credit inquiry fees for SMEs using trade insurance

Nippon Export and Investment Insurance (NEXI) will continue shouldering the expenses accruing from the said inquiries in order to increase trade insurance users among SMEs (Continuation).

(6) Information sharing program (fiscal 2009 budget: ¥70 million)

Information gathering and surveys will be continued for Japanese SMEs to maintain and conduct trade and business transactions smoothly in Taiwan, with which Japan has no diplomatic relationship, and their outcomes will be broadly publicized (Continuation).

(7) Program for promoting smooth international operation of SMEs (fiscal 2009 budget: ¥240 million)

Dispatch of experts and implementation of training for new employees in Japan will be continued for the benefit of local staffs of overseas subsidiaries of Japanese SMEs in order to improve their technological and management capabilities (Continuation).

(8) Finance for overseas operation (fiscal investment and loan program)

The JFC will continue providing necessary financing for SMEs seeking to enter overseas markets. In fiscal 2009, it will expand loan eligibilities and usages (Con-tinuation).

The SME Agency will encourage business startups and support the generation of job opportunities and other revitalizing initiatives amidst the severe environment expected for startups and new business initiatives.

Toward this end, the startup human resources develop-ment program will be implemented to offer startup classes and management innovation courses to aspiring chal-lengers. Also, for the smooth provision of funds needed for starting businesses, the new startup loan program, which provides no-collateral no-guarantor loans based on examination of the business plan, will be supplemented bytheRegionalRevitalizationandJobGenerationLoanProgram.

Furthermore, market development assistance will be continued through the startup support program by market navigators in order to increase opportunities for SMEs and venture companies to meet ex-company workers and oth-ers with substantial experiences in marketing.

[Specific measures]

(1) Startup human resources development program (fiscal 2009 budget: ¥1.31 billion)

Startup classes and management innovation courses will continue to be offered in order to encourage business startups, generate job opportunities in regions, and provide other forms of support (Continuation).

(2) Angel tax system (taxation scheme)Publicity programs for the aforementioned tax system

will be continued to further encourage individual investors (angel investors) to provide funds for venture companies, in tandem with developing favorable environment for startups (Continuation).

Section 3 Assistance for startups and venture companies

266

For Japan’s manufacturers to improve international competitiveness and to generate new business, it is essen-tial to upgrade outstanding core manufacturing technolo-giespossessedbySMEs,basedontheLawconcerningtheEnhancement of the Fundamental Technologies for SME Creativity (hereinafter referred to as “SME Technological AdvancementLaw”).Meanwhile, theSMEAgencywillalso work on developing a mechanism for finding “outlets” (such as procurement and commercialization) for the out-comesofR&Dandonutilizingintellectualproperties.

Therefore, continued from fiscal 2008, encouragement will be given for R&D and other measures undertakenby clusters centering on regional manufacturing SMEs in order to bolster Japan’s international competitiveness and create new industries.

Also, in order to assist commercialization of new technologies developed by SMEs and venture enterprises undertaking breakthrough, high-risk R&D, the SMEAgency will cooperate with other governmental bodies and independent administrative corporations to work out research themes and other measures that can be assigned to them to obtain procurable outcomes, and renovate the

Small Business Innovation Research (SBIR) through the adoption of a phased competitive selection method and other measures.

[Specific measures]

(1) Comprehensive support for upgrading core manufacturing technologies of SMEs

BasedontheSMETechnologicalAdvancementLaw,theSMEAgencywillexamineSMEs’R&Dplansinlinewith the guidelines for technological advancement and extend support to them upon approval through such means as the projects to support the advancement of strategic core technologies, low-interest loans from the JFC (SME Unit), and patent fee exemption (Continuation).

(2) Support based on the Small Business Innovation Research (SBIR)

Special subsidies and other funds will be earmarked for the development of cutting-edge technologies that can generate new industries, and policy will be formulated on the expenditure targets in order to increase spending

(3) Enhancement of the environment for the Startup Support Network (fiscal 2009 budget: ¥40 million)

The National Incubation Center “NICe” project will be expanded and enhanced to develop an environment for more useful two-way communication and information sharing among people who seek to start or have just started new businesses. The same network will also be used for continuing surveys on challenges and other difficulties faced by venture companies (Continuation).

(4) Loan program for supporting female, young, or senior entrepreneurs

With a view to promote innovation within Japanese industries and revitalize the economy by supporting the operations of SMEs which possess new technologies and know-how that are highly competitive, loan requirements for the aforementioned program will be revised, such as including application requirements for the angel tax sys-tem, taking them as “projects with new aspects in technol-ogy, know-how, etc.” (Continuation).

(5) New startup loan program (fiscal investment and loan program)

For smooth provision of the funds needed for starting businesses, the JFC will continue extending no-collateral no-guarantor loans for those who plan to start a new busi-ness or have started within less than two years, based on an examination of the business plan (Continuation).

(6) Venture FairsWhile working to expand sales channels and match-

ing opportunities with business partners for SMEs, the SME Agency will endeavor to increase the visibility of venture companies and will encourage entrepreneurship (Continuation).

(7) “Keep it up! SME Fund”The SMRJ forms investment funds in partnership with

private-sector entities that possess sales networks and a knack for judging business potential in order to provide various forms of financing tailored to different manage-ment needs and to offer in-depth management assistance for SMEs. This initiative will be continued in fiscal 2009 to actively support their challenge toward new business development and second-time startup (Continuation).

(8) Venture FundsThe SMRJ will invest in funds organized by investment

companies, etc. aimed at assisting venture companies in their early stage (less than 7 years after establishment) through investment and hands-on support, so that prom-ising SMEs and venture enterprises will acquire funds smoothly (Continuation).

(9) Start-up support program by market navigators

Ex-company workers and others with broad ranges of experience will be registered as market navigators. SMEs will be provided opportunities to meet such navigators who will introduce markets and find dealers (Continuation).

Section 4 Promoting technological innovation


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opportunities for SMEs and other enterprises. Furthermore, in order to facilitate the commercialization of the outcomes of technological development, exemption of patent and other fees, special loans, special credit system, special allowance for participating in bidding, phased competitive selection method (including at the national level), and other new measures will be introduced (Continuation).

(3) Support for development of networks between upstream and downstream companies (fiscal 2009 budget: ¥190 million)

To ensure close communication between upstream SMEs with core technologies and downstream indus-tries, support will be provided for activities that create opportunities and networks for them to interact with each other (Continuation).

(4) R&D promotion tax system (for strengthening the technological bases of SMEs) (taxation scheme)

ThesaidtaxsystemwillbecontinuedtopromoteR&Dby SMEs (Continuation).

(5) Evaluation of the performance of SME and other products (fiscal 2009 budget: ¥980 million)

While implementing joint research projects with SMEs

by utilizing sophisticated research infrastructure of public research institutions, the SME Agency will evaluate the performance of products developed by SMEs and other enterprises, and publicize the evaluation results so as to help their innovation from the experimental study phase to the marketing phase (New).

(6) Subsidies to realize innovations (fiscal 2009 budget: included in ¥3.46 billion)

Subsidies will continue to be provided for R&D-oriented SMEs and other enterprises working on the practical application of innovations in order to advance Japan’s industrial technologies (Continuation).

(7) University-launched Research and Development to Realize Business Creation (fiscal 2009 budget: ¥2.1 billion)

Subsidies will be provided to cover a part of the cost forR&Dforfindingthepracticaluseofresearchoutputsfrom universities and other institutions, under the condi-tion that SMEs and other enterprises will contribute towards research expenses. In fiscal 2009, support will be extended by selecting new projects with higher possibili-ties of practical application (Continuation).

Compared to large enterprises, SMEs tend to find difficulty having adequate sections and personnel for pro-tecting their own intellectual property. This points to the importance of utilizing outside experts who can publicize the intellectual property system and safeguard intellectual property, among other measures. In fiscal 2009, SMEs will continue receiving various kinds of support including alleviated patent fees, consultation services, and dispatch of experts.

[Specific measures]

(1) Relieving patent and other fees for R&D-oriented SMEs

SMEsundertakingambitiousR&Dwillcontinueben-efiting from 50% reductions in examination fees and pat-ent fees (for the first through third years) (Continuation).

(2) Shelters on intellectual propertyThe shelters on intellectual property will continue

assisting SMEs to address their intellectual property issues through consultation services and by introducing them to other support organizations among other assistance mea-sures (Continuation).

(3) Survey of patent application trends (fiscal 2009 budget: ¥600 million)

InordertosupportthedevelopmentofR&Dandintel-lectual property strategies, the survey of patent applica-tion trends will be continued to disseminate information, selecting technological themes mainly from eight priority areas designated by the government (Continuation).

(4) Publicizing the intellectual property system and industrial property rights system

Briefing sessions and seminars on intellectual property rights for beginners and practitioners will be held, in addi-tion to consultation services upon violation of industrial property rights, in order to spread awareness of the sys-tems (Continuation).

(5) Support for the intellectual property strategies of local SMEs (fiscal 2009 budget: ¥220 million)

Intellectual property experts and others will be dis-patched for a certain period of time to provide intensive support for SMEs to utilize intellectual properties in their business (New). Also, SMEs seeking strategic overseas patent applications will receive subsidies for the necessary fees (Continuation).

Section 5 Measures on intellectual property

268

(6) Support for surveys of prior art for the patents applied for by SMEs and other enterprises (fiscal 2009 budget: ¥640 million)

Regarding patent applications prior to requests for examinations by SMEs and other businesses, support will be continued for surveys of prior art conducted to provide information that can be used when deciding whether to request an examination (Continuation).

(7) System of early patent examination (fiscal 2009 budget: included in ¥130 million)

A system of expedited patent examinations and judg-ments will be continued so that SMEs and other enter-prises may obtain patents faster than the regular procedure (Continuation).

(8) Measure to promote patent licensing (fiscal 2009 budget: ¥2.58 billion)

Utilization of intellectual property will continue to be promoted in collaboration with experts and through other projects such as collaborations between agriculture, com-merce and industry (Continuation).

(9) Measures to protect SMEs’ intellectual property rights (fiscal 2009 budget: ¥290 million)

SurveyswillbecontinuedbyutilizingJETRO’sover-seas networks, based on individual requests from SMEs, on violations of intellectual property rights and related matters (Continuation).

Concerning regional power collaboration centers, the promotion agencies will be reviewed based on the project evaluationsforthelastfiscalyear.Onthatbasis,theSMEAgency will enhance one-stop services involving new project identification, conceptualization of management challenges, strategy building toward solutions, dispatch of experts, and business matching through consultation bureaus in partnership with financial agencies, agricultural cooperatives and other organizations while sharing the experience and know-how gained in fiscal 2008 among collaboration centers nationwide.

Meanwhile, the JFC will extend no-collateral no-guar-antor loans in the form of the Managerial Improvement LoansforSmallEnterprises(MarukeiLoans)toprovidefinancial support to small enterprises with fragile business bases which lack substantial collateral and creditworthi-ness.

[Specific measures]

(1) Regional power collaboration centers (fiscal 2009 budget: ¥5.79 billion)

One-stop services will be continued at 327 regionalpower collaboration centers nationwide, involving new project identification, strategy building for addressing management challenges and dispatch of experts (Con-tinuation).

(2) Managerial Improvement Loans (Marukei Loans)

MarukeiLoanswillcontinuebeextendedbytheJFC(Micro Business and Individual Unit) (Continuation).

(3) Small enterprise equipment funding programs (loans and leases)

TheEquipmentFundInterest-freeLoanProgramandthe Equipment Lending Program will be continued inorder to promote the introduction of the facilities neces-sary to establish small enterprises and strengthen their business fundamentals (Continuation).

In order to ensure sound and vibrant operation of SME business cooperatives, guidance will continue to be offered on founding cooperatives and related matters. Also, taking advantage of the amendment of the Immigra-tion Control and Refugee Recognition Act, the Industrial Training and Technical Internship Programs for foreign-ers will be facilitated through the National Federation of

Small Business Associations, the agency specialized in supporting collaborative organizations of SMEs.

Furthermore, the SMRJ will collaborate with prefectural governments to continue supporting business cooperatives and other organizations in procuring the necessary funds for developing infrastructure for joint projects.

Chapter 4 Promoting collaborative organizations of small enterprises

Section 1 Measures for small enterprises

Section 2 Measures for collaborative organizations


269

[Specific measures]

(1) SME cooperatives programsEfforts to disseminate SME business cooperatives in

order to further improve their credibility concerning all aspects of business operation and ensure sound operation of mutual aid programs will be continued (Continuation).

(2) Facilitating the Industrial Training and Technical Internship Programs for foreigners

The National Federation of Small Business Asso-ciations will train instructors and host workshops through prefectural federations to disseminate and raise awareness on related laws and regulations. Furthermore, the National Federation will create and demonstrate model contracts (documentation on training programs agreed between a business cooperative accepting trainers and an SME) consistent with the amendments made to the related laws,

in order to encourage SME cooperatives to formulate con-tracts and other materials when training foreigners under the program (Continuation).

(3) National Federation of Small Business Associations (fiscal 2009 budget: ¥1.16 billion)

Support will continue to be provided through the National Federation of Small Business Associations for activities by SMEs seeking to improve productivity and other prospects by utilizing collaborative organizations such as cooperatives (Continuation).

(4) Upgrading Program loans to assist infrastructure development

The SMRJ will continue working with prefectural governments to help business cooperatives and other organizations procure the necessary funds for developing infrastructure for joint projects (Continuation).

While the business environment surrounding the retail industry continues to become more severe, there are concerns that regional communities are losing their func-tions due to the declining birthrate and aging population. Against this backdrop, community residents increasingly look to the local shopping centers, which have taken root in community life, as a vehicle to maintain and develop their communities.

Amidst this situation, it becomes all the more impor-tant to revitalize Japan’s shopping districts, which play a central role in the regional communities, by reinforcing their social and public functions in order to draw in more people. To that end, the draft law for stimulating business activities tailored to the community needs for revitalizing shopping districts (hereinafter referred to as the “Bill on the Regional Shopping District Revitalization”) was sub-mitted to the Diet in March 2009. Around this draft law, a comprehensive assistance package, which includes subsi-dies, tax relief and training, is planned to be implemented for activities unique to shopping districts that help improve community life and advertise regions’ attractiveness.

Furthermore, in order to realize compact cities full of vitality, city centers will be encouraged to work on “con-centrating urban functions into the center” and “bringing back vitality to the city centers” in an integrated manner in line with the basic plan approved under the Act on the Improvement and Vitalization in City Centers. Specifi-cally, private proprietors and retailers seeking to vitalize commerce in cooperation with local municipalities will be assisted through the program of strategic support for revitalization of commerce in city centers. In particular, from fiscal 2009 priority will be given to depopulated city centers where town developers seek to mobilize real estate by separating ownership and use.

[Specific measures]

(1) Support based on the Bill on the Regional Shopping District Revitalization

(i) OutlineofthelawThe government will formulate a “basic policy” indi-

cating the significance of promoting shopping district revitalization projects and their basic directions. This basic policy will serve as a guideline for the government to approve and assist in appropriate projects (selected from (1) revitalization plans submitted by shopping center promotion associations and other organizations, and (2) shopping district revitalization assistance plans submitted bygeneralincorporatedassociations,NPOs,etc.thatspe-cialize in facilitating such projects) after hearing opinions from prefectural and municipal authorities (New).(ii) Special exception to the Law on Subsidization of

Funds for the Introduction of Equipment by Small Enterprise

Small enterprises (in commerce and service industries with five employees or less) working on projects approved under the Bill on the Regional Shopping District Revital-ization will benefit from the expanded interest-free loan limitwhichwillberaisedfrom1/2to2/3oftheequipmentfunds (New).(iii)SmallandMediumEnterpriseCreditInsuranceLaw

Using the special exception to the Small and Medium EnterpriseCreditInsuranceLaw,insurancecoveragewillbe raised from 70% to 80% and the premium rate will be reducedfromwithin3%towithin2%,inadditiontothelimits for credit insurance being doubled (New).(iv) No-interest loans by municipalities (Upgrading Pro-

gramLoanoftheSMRJ)The SMRJ will contribute a part of loans which the

Section 3 Measures for commerce and shopping districts

270

municipalities (including cities within Tokyo) provide interest-free for proprietors to procure the necessary funds for realizing the projects approved under the Bill on the Regional Shopping District Revitalization (New).

(2) Program to improve the vitality of SMEs in commerce (fiscal 2009 budget: ¥4.2 billion )

Support will be continued for efforts by shopping centers and other businesses to revitalize commerce in such a way as to address social issues such as declining birthrates and aging population, safety and peace of mind, etc. in order to bring vibrancy to shopping districts which play a central role in regional communities. In particular, subsidies for the projects approved under the Bill on the Regional Shopping District Revitalization will be raised from1/2to2/3forprioritizedsupport(Continuation).

(3) Special tax exemption scheme for revenues from the transfer of lands (taxation scheme)

A special tax exemption will be continued for those who sold lands and other properties to the approved shopping center promotion associations and other organizations with the maximum set at ¥15 million of the revenue from the said transaction (Continuation).

(4) Human resources development and other issues at the National Shopping District Support Center

Support will be provided for human resources develop-ment, know-how sharing, and other services at the National Shopping District Support Center, which has been jointly established by the National Federation of Shopping Center Promotion Associations, the CFSCI, and others (New).

(5) Strategic support for revitalization commerce in city centers (fiscal 2009 budget: ¥5.8 billion)

To realize compact and vibrant cities, prioritized sup-port will be continued for private proprietors, retailers, approved town developers, etc. seeking to vitalize com-merce in cooperation with local municipalities in line with the basic plan approved under the Act on the Improvement and Vitalization in City Center (Continuation).

(6) Program to dispatch advisers for city center and shopping district revitalization (SMRJ subsidy program)

Experts on commercial revitalization registered by the

SMRJ will continue to be dispatched to address various challenges faced by the councils for the revitalization of city centers and shopping districts both within and outside city centers (Continuation).

(7) Revitalization consultation and support for commerce in city centers (SMRJ subsidy program)

The SMRJ will continue holding seminars and mini-symposiums as well as providing consultation services, using its specialized know-how, in order to support efforts by the councils for the revitalization of city cen-ters, shopping centers, etc. to revitalize commerce in city centers (Continuation).

(8) Program to support the operation of the Councils for the Revitalization of Central Urban Districts (SMRJ subsidy program)

The Support Center for the Councils for the Revital-ization of Central Urban Districts established within the SMRJ will play a major role in providing inquiry services and information on the operation of the councils for the revitalization of city centers, holding events for exchange of information, and conducting surveys, studies, etc. Comprehensive support will be continued to network the councils for the revitalization of city centers and shopping districts nationwide (Continuation).

(9) Program to support activities of shopping center promotion associations (fiscal 2009 budget: ¥30 million)

The National Federation of Shopping Center Promotion Associations will continue receiving support in providing guidance and information to the shopping center promo-tion associations and their federations for their smooth business operation (Continuation).

(10) Taxation scheme to strengthen the bases of SMEs and other enterprises (taxation scheme)

Special tax relief will be applied for SMEs in retail, wholesale,andserviceindustries,whichwillgeta30%special depreciation or a 7% tax deduction out of the purchase price for the procured machinery, equipment, etc. (Continuation).


271

[Specific measures]

(1) Modernization of SMEs in the agriculture, forestry and fisheries industries

(i) Emergency measures for structural changes concern-ing raw material sources, etc. for wood industry (fiscal 2009 budget: ¥500 million)

In order to shift the source of raw materials from imported woods to domestic woods, subsidies will be provided to pay the interests for loans borrowed for introducing necessary processing equipment, stabilizing management, and for other requirements. Subsidies will also be provided to help pay the interests or lease fees for introducing machineries needed for stable supplies of high-quality, reliable performance wood products at low costs (New).(ii) Programs to promote collaborations between the food

and agricultural industries (fiscal 2009 budget: ¥800 million)

Support will be given to efforts to develop new prod-ucts and markets that make use of domestic products by encouraging region-wide collaborations among the food manufacturing, agricultural, forestry and fisheries industries and others in order to promote efforts for col-laborations between agriculture, commerce and industry (Continuation).(iii) The following programs will be implemented through

competitive funding and other methods1) Promoting R&D for innovation (fiscal 2009 budget:

¥6.8 billion)R&D to develop, apply, and enhance the techno-

logical “seeds” that will lead to innovation in the food manufacturing, and agriculture, forestry and fisheries industries,willbepromoted.Inaddition,R&Dsupportmeasures that contribute to the development of ventures will be implemented (Continuation).

2) Developing practical technologies for new agricultural policies (fiscal 2009 budget: ¥6.52 billion)

Technological development for practical applica-tion by partnerships among industry, government and academia will be promoted while considering collaborations between agriculture, commerce and industry in order to contribute to the development of the food manufacturing, and agriculture, forestry and fisheries industries as well as to regional revitalization (Continuation).

3) Promoting thepracticalapplicationsofprivate sectorR&D(fiscal2009budget:¥900million)

With the goal of promoting development of revo-

lutionary bio-oriented technology that contributes to the advancement of agriculture, forestry and fisheries industries, food services, brewing, and other industries, supportwillbeprovidedforprivatesectorR&Dinthestage of practical viability (Continuation).

(iv) Disseminating HACCP procedures for food manu-facturing industry (fiscal 2009 budget: ¥180 million)

In order to promote the adoption and establishment of HACCP procedures, efforts will be continued to train the necessary personnel and to publicize HACCP to raise the people’s awareness in collaboration with consumer asso-ciations (Continuation).(v) Subsidies for regions promoting the use of biomass

(fiscal 2009 budget: included in ¥11.16 billion)Support will be provided for the development of recy-

cling and other facilities in regions promoting the use of biomass, including food waste (Continuation).(vi) Demonstration of the economic food recycling system

(fiscal2009budget:¥30million)Support will be provided for model measures in regions

aiming for economic food recycling (Continuation).(vii) Promoting the smooth implementation of the Con-

tainers and Packaging Recycling Law (fiscal 2009budget: ¥40 million)

Action will be taken to promote measures for estab-lishing and disseminating the entire system of the Lawfor the Promotion of Sorted Collection and Recycling of Containers and Packaging (the Containers and Packaging RecyclingLaw)(Continuation).(viii) Program for developing a quality control system for

the marine products industry (fiscal 2009 budget: ¥110 million)

Support will be given to introduce HACCP procedures in all stages of the fisheries industry including fishing boats, fish markets, processing plants, etc. as well as to marine product processing plants and other facilities seek-ing to export their products to Europe, the U. S., and other places (Continuation).(ix) Loans for specific agricultural product processors

(fiscal investment and loan program)Loans will be provided by the JFC (Agriculture,

Forestry, Fisheries and Food Business Unit) and other financial institutions to enable specific agricultural prod-uct processors to improve their business in accordance with the Law on Temporary Measures to Improve theBusinesses of Specific Agricultural Produce Processors (Continuation).

Chapter 5 Industry-specific measures for SMEs

Section 1 Measures for SMEs in the agriculture, forestry and fisheries industries

272

(x) Loans for upgrading the quality control of foodmanufacturers (fiscal investment and loan program)

LoanswillbeprovidedbytheJFC(Agriculture,For-estry, Fisheries and Food Business Unit) for the develop-ment of facilities required for upgrading the control of food enterprises’ manufacturing processes in order to promote the adoption of HACCP methods (Continuation).(xi) Loansfornewusesofagriculturalandotherproducts

(fiscal investment and loan program)The JFC (Agriculture, Forestry, Fisheries and Food

Business Unit) will provide loans to promote the adoption of new uses for specific agricultural, forestry, and marine products, and new varieties of processed raw materials (Continuation).(xii)Loansforfacilitatingfooddistribution(fiscalinvest-

ment and loan program)The JFC (Agriculture, Forestry, Fisheries and Food

Business Unit) will provide loans for food manufacturers and businesses in the agriculture, forestry, and fisheries industries to build stable business relations, and develop the necessary agriculture, forestry, and fisheries facilities (Continuation).(xiii)Loansfordairyfacilities(fiscalinvestmentandloan

program)The JFC (Agriculture, Forestry, Fisheries and Food

Business Unit) will provide loans to dairy farmers to improve their dairy facilities (Continuation).(xiv) Wood Industry Upgrading Promotion Fund and the

loans for improving management in the forestry andwoodindustries(fiscal2009loan:up to¥136.8 billion)

In order to rationalize the production and distribution of wood, loans will be provided by the Wood Industry Upgrading Promotion Fund, combined with the loans for improving management in the forestry and wood indus-tries (Continuation).(xv)Temporary Law on Funding for Improving Marine

Product Processing Facilities (fiscal investment and loan program)

In order to strengthen the structure of the marine product processing industry in response to changes in the situation surrounding the industry, loans will be provided from marine product processing funds (Continuation).

(2) Rationalization of food and wood distribution(i) Program to promote upgrading of food retailing func-

tions(fiscal2009budget:¥330million)Support will be given for small and medium food

retailers to introduce facilities and appliances, via leasing, necessary to reinforce food distribution service functions that exactly meet consumers’ needs, such as processing and sale of food products, bringing products fresh from the farm, and home-deliveries (New).(ii) Program to reduce waste in food manufacturing (fis-

cal 2009 budget: ¥50 million)In order to encourage food manufacturers to reduce

food waste and other problems, legal statutes concerning

waste reduction and specific examples of actions to be taken will be publicized, depending on the amount of waste actually produced (New).(iii) Program to promote the labeling of the places of

origin (fiscal 2009 budget: ¥20 million)Further adoption of the Guidelines for Labeling the

PlaceofOriginintheFoodIndustrywillbepromotedtoallow enterprises in the food industry to independently display information on the production location of ingredi-ents based on the said Guidelines (New).(iv) Subsidy for developing the forestry and wood industry

(fiscal2009budget:includedin¥13.2billion)Support will be provided for rural small and medium

mills to introduce facilities for switching product lines to collaborate with major factories, and for establishing a system to produce a stable supply of thinning wood chips for paper making (New).(v) Program to reduce costs for food retailers and

improve their business structures (fiscal 2009 bud-get: ¥40 million)

Private organizations will be utilized to demonstrate and popularize cost-reducing business models allow-ing food retailers to achieve appropriate stocking, and other aspects. Support will be provided for measures to transmit information on agriculture, forestry and marine products, including details on production location and on dietary education, in a both accurate and accessible way (Continuation).(vi) Program to promote business models for adding value

in food distribution (fiscal 2009 budget: ¥20 million)Support will be provided through private organizations

for measures to add more value to local agricultural and marine products by such means as developing original products for food retailers, shopping center promotion associations, etc. to promote the revitalization of food retailing and shopping districts in cooperation with pro-ducer groups and others (Continuation).(vii)Loanstoimprovethefooddistributionstructure(fis-

cal investment and loan program)Food distributors will receive loans from the JFC

(Micro Business and Individual Unit) for the modern-ization of fresh food retailing, as well as from the JFC (Agriculture, Forestry, Fisheries and Food Business Unit) under the system to provide loans for the improvement of the food distribution structure (Continuation).(viii) Program to reorganize the dairy industry (fiscal 2009

budget: ¥4.62 billion)Far-reaching reorganization and rationalization of

dairy product plants will be further promoted, and subsi-dies provided for the concentration of production at dairy industry facilities meeting high hygiene standards (using subsidies and funds allocated for the Agriculture and LivestockIndustriesCorporation)(Continuation).(ix) Subsidies for development of the forestry and wood

industry (fiscal 2009 budget: included in ¥13.2 billion)

The establishment of distribution and processing hubs


273

to provide low-cost, stable supplies of wood products of reliable quality and performance will be promoted, com-bined with the development of infrastructure for supplying

dried woods and lumber as well as a new model system for comprehensive use of wood materials (Continuation).

[Specific measures]

(1) Warehousing industryThe modernization of facilities, upgrading of logis-

tics functions, and development of joint warehousing operations will be promoted in order to meet increasingly sophisticated logistics needs created by changes in the social and economic environment.

(2) Automobile wrecking and maintenance businesses

In order to facilitate the raising of funds required for the modernization of automobile wrecking and maintenance operations, loan guarantees and interest subsidies will be provided by making appropriate use of the automobile maintenance modernization fund program.

(3) Coastwise shipping businesses(i) Support will be given to the demonstration and exper-

imentation of facilities and navigation techniques that improveenergyefficiencyandreduceCO2 footprints for their further adoption, as well as to efforts to

develop more skilled personnel and establish a sys-tem to identify energy-saving measures for individual ships. Meanwhile, ships that save energy and reduce their environmental load more effectively will be developed and related studies will be conducted (fis-cal 2009 budget: ¥50 million).

(ii) Support will be given for the smooth and steady operation of the tentative coastwise shipping business program, with the government guarantee limit set for loans needed for the said program. Also, continued from the last fiscal year, the construction of “super eco-ships,” which feature the latest, environmentally friendly and economical technology, will be promoted by utilizing the joint shipbuilding operations of the Japan Railway Construction, Transport and Technol-ogy Agency, in order to revitalize coastwise shipping.

(4) Small and medium shipbuilding and related manufacturers

Financial and other necessary measures will be applied in order to encourage new business activities by small and medium shipbuilders and ship equipment manufacturers.

[Specific measures]

(1) Securing and training personnel(i) Support will be provided for cooperative efforts among

local constructors, technical high schools, and others in order to secure and develop personnel who would shoulder the future of the construction industry.

(ii) Support will be given for recruiting female, young and other workers as a new work force, and for initia-tives to make creative use of skilled workers, in order to secure and develop skilled construction workers.

(iii) Recruitment, development and utilization of core skilled workers who play a central role in the con-struction site will be promoted.

(iv) TheMinisterofLand,InfrastructureandTransport’sAward for outstanding engineering will be given to distinguished construction workers.

(2) Organization and cooperationOrganizationofbusinesscooperativesandotherorga-

nizations of small and medium building contractors will be promoted, and guidance will be given for the rational operation of their joint business projects.

(3) Business innovation and rationalization(i) Utilization of assistance measures of the Law for

Facilitating New Business Activities of Small and Medium Enterprises and others will be promoted, and guidance and information will be provided to promote startups, business innovation, and new partnerships among small and medium building contractors.

(ii) Efforts by small, medium, and middle-tier building contractors for business innovation, including entry into new fields, will be promoted, in tandem with the development of an electronic transaction environment.

(4) Strengthening management capacities (fiscal 2009 budget: ¥470 million)

(i) Emergency consultation counters will be set up for constructors and experts dispatched to their sites, in addition to the “one-stop access centers” established jointly by related ministries and agencies in order to respond to complex and highly demanding manage-ment inquiries from small, medium, and middle-tier building contractors.

(ii) Revitalization project for building contractors and communities will be implemented to support initia-

Section 2 Measures for SMEs in the transport industry

Section 3 Measures for small and medium building contractors

274

[Specific measures]

(1) Development of the real estate market (fiscal 2009 budget: ¥10 million)

In order to promote the further adoption of the Real Estate Information Network System (REINS), the trust of consumers must be gained in addition to increasing their awareness and interest in the system, with support to be provided for measures that provide information incorporating real estate transaction price data in REINS, and for promotion of further development of the real estate distribution market.

(2) Financial measures for small and medium realtors

Government-affiliated financial institutions will provide loans for equipment funds to small and medium realtors, while the Real Estate Transaction Modernization Center provides loan guarantees and interest subsidies for business associations and other organizations to take joint initiatives, targeting project facilitation funds and joint facility funds, among others.

[Specific measures]

(1) Measures for the environmental sanitation business

As in fiscal 2008, support will continue to be given in fiscal 2009 for the advancement of environmental sanita-tion services suited to contemporary needs. Toward this end, the following measures will be implemented by the Environmental Sanitation Business Guidance Centers, which were established in order to maintain and raise hygiene levels, and protect the interests of users and con-sumers by ensuring sound management of environmental sanitation businesses.(i) Energy-saving promotion programs, including formu-

lation of industry-specific guidelines, for promoting energy-saving actions in environmental sanitation businesses (New).

(ii) Successor development support programs that, in order to support activities to secure successors in environmental sanitation businesses, implement model projects for introducing an internship system for the purpose of promoting the employment of young people in environmental sanitation businesses (Continuation).

(iii) Business reform promotion programs will support environmental sanitation businesses that face the intensified competition presented by the entry of large enterprises by helping them convert their business form to adapt to regional circumstances. Study groups will be convened and consumer/user awareness surveys conducted, while implementing model projects based on newly created business forms (Continuation).

(iv) Programs to improve consumer services, promote community welfare, develop human resources, and improve sanitation standards, among other purposes, through independent actions of environmental health associations and other organizations (Continuation).

(v) Town development programs involving convening study groups, conducting awareness surveys, creating sanitation mapping, aimed at supporting the develop-ment of residential zones such as shopping districts (Continuation).

(2) Loans for environment sanitation businessThe JFC (Micro Business and Individual Unit) will

provide environmental sanitation fund loans of up to a totalof¥175billion.InOkinawaPrefecture,theOkinawaDevelopment Finance Corporation will provide loans up

tives aimed at revitalizing regions and constructing industry, through collaborations among different sec-tors such as agriculture, forestry, tourism, and social welfare, and by utilizing personnel, facilities, and know-how possessed by small, medium, and middle-tier building contractors.

(5) Facilitation of financeIn order to facilitate the fundraising of building contrac-

tors, the finance system to strengthen business of regional building contractors, which involves encouragement to liquidize construction fees receivables (including fees for unfinished parts) held by building contractors against

consignors of public works, among other measures, will continue to be applied in fiscal 2009. Building contractors using the system will continue to benefit from interest pay-ment relief and other measures through subsidies from the central government.

(6) Modernization and revitalization of local small and medium homebuilders

In order to promote modernization and revitalization of local small and medium homebuilders, activities to promote the development of the housing market will be pursued, and support will be provided for activities to develop technology, train skilled workers, and more.

Section 4 Measures for small and medium realtors

Section 5 Measures for the environmental sanitation business


275

to a total of ¥4 billion.(i) Interest rates for loans to cover equipment and run-

ning costs will be reduced for businesses operating based on the development plan.

(ii) Facilities for “photovoltaic power generation” and “wind power generation” will be added to the cat-egory of energy-saving facilities, and loans for these two will benefit from reduced interest rates.

[Specific measures]

(1) Multi-regional comprehensive tourist services support program (fiscal 2009 budget: ¥320 million)

In order to build tourist and mass entertainment service industries that are internationally competitive, original differentiating strategies will be developed to utilize

industries and other aspects unique to the region as tourist assets and to join people of various backgrounds across multiple regions, and support will be given to comprehen-sive measures involving multiple regions and industries. Specifically, subsidies will be given for startups to build a common operational base (covering 1/2 of the cost for up to3years),whereitisdifficultforindividualproprietorsto address.

[Specific measures]

(1) New designation of traditional craftsAdditional traditional crafts will be designated in

consultation with the Industrial Structure Council after examination and review, upon receipt of applications for such designation under the Traditional Crafts Industries Law(Continuation).

(2) Grant projects related to the promotion of the traditional crafts products industry (fiscal 2009 budget: ¥1.02 billion)

Subsidies will continue for demand creation projects

and training programs initiated by the local cooperatives and the Association for the Promotion of Traditional Craft Industries for promoting the traditional crafts industry (Continuation).

(3) Popularization and promotion of “Traditional Crafts Month”

In order to raise public awareness of traditional crafts, November of each year will be designated “Traditional Crafts Month.” Publicity efforts will be continued, includ-ing the hosting of the Traditional Crafts Month national conferences (Continuation).

[Specific measures]

(1) Human rights awarenessIn order to propagate the idea of respect for human

rights and to cultivate awareness of human rights among SMEs, prefectures will continue to be commissioned to organize activities such as lectures to raise awareness of human rights.

Section 6 Measures for SMEs in tourist industry

Section 7 Measures for the development of traditional crafts industries

Chapter 6 Other measures for SMEs

Section 1 Promotion of human rights awareness

Section 2 Measures for SMEs in Okinawa

[Specific measures]

(1) Programs for SMEs in Okinawa (fiscal 2009 budget: ¥69 billion)

Withregard tomeasures forSMEs inOkinawa,¥69

billionwillbeallocatedfor loans toSMEsby theOki-nawa Development Finance Corporation. The special loan program will also be expanded, and loan terms will be improved.

276

[Specific measures]

(1) Publicizing of measures(i) Print Media

The Guidebook for the Use of SME Measures contain-ing a concise summary of the main points of SME mea-sures, the Comprehensive Data Book of SME Measures, pamphlets, and other materials on specific measures will continue to be created and distributed (Continuation).(ii) Flyers

Flyers will continue to be inserted in Cabi Net (monthly government publicity magazine) to advertise SME mea-sures (Continuation).(iii) J-NET21 (a portal site for SME support)

A portal site for SME support will continue to be oper-ated to provide smooth access to necessary information sources (Continuation).

(2) Production of the SME White Paper and other documents

In accordance with Article 11 of the Small and Medium EnterpriseBasicLaw,anannualreport(Fiscal2010SMEWhite Paper) will be produced to grasp the conditions and challenges of SMEs. Meanwhile, indices will be created, including the Manufacturing Production Indices by Size of Enterprise (Continuation).

(3) Basic Survey of Small and Medium EnterprisesThe Basic Survey of Small and Medium Enterprises

will continue to have organized statistics on management and financial information about SMEs such as sales rev-enues and number of employees (Continuation).

(4) Publication of the Survey on SME Business Conditions

The Survey on SME Business Conditions conducted quarterly by the SMRJ to grasp business trends of SMEs will continue to be publicized (Continuation).

Section 3 Promotion of surveys and public information activities

Appended notes

278

Contents

Appended note 1-1-1 Business cycles in the Japanese economy ............................................................. 280

Appended note 1-2-1 Comparison of SME capital expenditure and cash flow ......................................... 280

Appended note 2-1-1 Calculation method of value added by company scale and TFP............................ 281

Appended note 2-1-2 Growth rate of value added by large enterprises and the contribution of capital, labor and TFP .......................................................................................... 282

Appended note 2-1-3 Changes in the number of researchers per 10,000 employees by company scale (in manufacturing) ...................................................................... 282

Appended note 2-2-1 Number of trading partners (by employee size) ...................................................... 283

Appended note 2-2-2 Trading partners compared to five years ago (by employee size) .......................... 283

Appended note 2-2-3 Geographical location of newly acquired trading partners (by employee size) ...... 284

Appended note 2-2-4 Relationship between the increase in trading partners and the geographical location of newly acquired partners ............................................ 284

Appended note 2-2-5 Timing of integration of manufacturing and services (by employee size) ............... 285

Appended note 2-2-6 Benefits of conducting electronic commerce (in terms of the presence or absence of subcontractors) ....................................... 285

Appended note 2-2-7 Percentage of export amount in export planning and sales (FY2008) ................... 286

Appended note 2-2-8 Percentage of enterprises that conduct direct export ............................................ 286

Appended note 2-2-9 Overseas sales by employee size ............................................................................ 287

Appended note 2-2-10 Overseas sales by employee size (classified by whether patents have been obtained or not) .................................... 287

Appended note 2-2-11 [1] Trends in the number of enterprises expanding overseas ................................. 288

Appended note 2-2-11 [2] Number of enterprises expanding overseas (companies only).......................... 288

Appended note 2-2-12 Collaboration partners sought by SMEs by purpose .............................................. 290

Appended note 2-3-1 Percentage of patent applications worldwide accounted for by Japan, the U.S., Europe, China and South Korea ............................................................... 290

Appended note 2-3-2 Breakdown of patent applications by Japanese nationals...................................... 291

Appended note 2-3-3 Number of domestic patent applications per company .......................................... 291

Appended note 2-3-4 Regarding statistical techniques in the Patent Office’s Survey of Intellectual Property-Related Activities ...................................................................................... 292

Appended note 2-3-5 Reasons for keeping patent applications to a minimum and protecting intellectual property as trade secrets .................................................... 292

Appended note 2-3-6 Number of acquired domestic patents per company ............................................. 293

Appended note 2-3-7 Conditions surrounding the acquisition of patents (by number of employees) ...... 293

Appended note 2-3-8 Important issues in intellectual property strategies according to whether or not patents have been acquired .............................................................................. 294

Appended note 2-4-1 Trends in the number of students in technical colleges .......................................... 294

Appended note 2-4-2 Changes in the post-graduation paths of high school students studying technical subjects .................................................................................................... 295

Appended note 2-4-3 Changes in the post-graduation paths of technical college students .................... 295

Appended notes

279

Appended note 2-5-1 Attributes of SMEs that responded to the Financing Conditions Survey (Median value) .......................................................................................................... 296

Appended note 2-5-2 Types of venture funds according to SMRJ fund projects ...................................... 296

Appended note 2-5-3 Trends of newly listed companies ............................................................................ 296

Appended note 2-5-4 Investment recovery methods for venture capital firms in the United States (2007 record) ............................................................................................................ 297

Appended note 2-5-5 Industry and regional distribution of businesses targeted for venture capital investment (2008) ..................................................................................................... 297

Appended note 2-5-6 Preference for receiving investment from venture capital firms and important management polices (growth, expansion, and stability phase SMEs) ............................................................................................... 298

Appended note 2-5-7 SMEs’ positive evaluations regarding transactions with venture capital firms and aspects to improve on ...................................................................................... 298

Appended note 3-1-1 Trends in number of working hours for permanent and non-permanent employees by enterprise scale (by manufacturing and non-manufacturing) ......... 299

Appended note 3-1-2 Trends in wages for permanent and non-permanent employees by enterprise scale (by manufacturing and non-manufacturing) ............................ 300

Appended note 3-1-3 Trends in wages per hour of work for permanent and non-permanent employees by enterprise scale (by manufacturing and non-manufacturing) ......... 301

Appended note 3-1-4 Factors behind the changes in labor share (change from previous term) .............. 302

Appended note 3-1-5 Reasons for wanting to change jobs by enterprise scale (2007) ............................ 303

Appended note 3-1-6 Future prospects regarding insufficient personnel in SMEs by recipients of products and services ......................................................................................... 303

Appended note 3-1-7 Industry type of previous job where SME employees have changed jobs within the past five years (by permanent employees and non-permanent employees) ..................................................................................... 304

Appended note 3-3-1 Wage curve of permanent employees ..................................................................... 305

Appended note 3-3-2 Wage curve of permanent employees according to whether they belonged to the manufacturing industry or a non-manufacturing industry ............................ 305

Appended note 3-4-1 Satisfaction of permanent employees towards the fact that their job is suitable for them ................................................................................................... 306

Appended note 3-5-1 The gap between enterprises and employees regarding effective measures for allowing women to continue working as permanent employees while raising children ............................................................................. 307

Appended note 4 Outline of actual survey ............................................................................................ 307

280

Appended note 1-1-1 Business cycles in the Japanese economyLength (months)

Trough Peak Trough Expansion Contraction Total cycle

1st cycle Jun. 1951 Oct. 1951 4

2nd cycle Oct. 1951 Jan. 1954 Nov. 1954 27 10 37

3rd cycle Nov. 1954 Jun. 1957 Jun. 1958 31 12 43

4th cycle Jun. 1958 Dec.1961 Oct. 1962 42 10 52

5th cycle Oct. 1962 Oct. 1964 Oct. 1965 24 12 36

6th cycle Oct. 1965 Jul. 1970 Dec. 1971 57 17 74

7th cycle Dec. 1971 Nov. 1973 Mar. 1975 23 16 39

8th cycle Mar. 1975 Jan. 1977 Oct. 1977 22 9 31

9th cycle Oct. 1977 Feb. 1980 Feb. 1983 28 36 64

10th cycle Feb. 1983 Jun. 1985 Nov. 1986 28 17 45

11th cycle Nov. 1986 Feb. 1991 Oct. 1993 51 32 83

12th cycle Oct. 1993 May 1997 Jan. 1999 43 20 63

13th cycle Jan. 1999 Nov. 2000 Jan. 2002 22 14 36

14th cycle Jan. 2002 Oct. 2007 69 provisional value

Average 35.9 17.1 50.3

Source: Compiled by SME Agency based on Cabinet Office, Reference Dates of Business Cycle.

Appended note 1-2-1 Comparison of SME capital expenditure and cash flow

Source: MOF, Financial Statements Statistics of Corporations by Industry, Quarterly.Notes: 1. Quarter I of 1999 to Quarter IV of 2008. Year-on-year comparison of the moving average of the past four quarters. 2. Cash flow = ordinary profit × 0.5 + depreciation costs. 3. Only includes enterprises with capital of ¥10 million or above and less than ¥100 million.

y = 1.2999x - 0.6716R2 = 0.6262

-30

-20

-10

0

10

20

30

-20 -15 -10 -5 0 5 10 15 20

Cap

ital e

xpen

ditu

re g

row

th (y

ear-

on-y

ear)

Cash flow growth (year-on-year)

Appended notes

281

Appended note 2-1-1 Calculation method of value added by company scale and TFP

The value added by company scale and the contribution of capital, labor and TFP to the growth of value added shown inFig.2-1-11,Fig.2-1-12,andAppendednote2-1-2werecalculatedusingthemethodbelow,utilizingtheMOF,Financial Statements Statistics of Corporations by Industry, Annually and targeting all industries (excluding the financial and insur-ance industry) from fiscal 1961-2007 by company scale (enterprises with capital of less than ¥100 million are defined as SMEs and enterprises with capital of ¥100 million or more are defined as large enterprises). Business cycle factors should have been excluded taking into consideration operation rates and working hours, however here they are not due to limita-tionsofcompanyscalestatistics.However,forFig.2-1-12andAppendednote2-1-3,sincetheaveragevalueforeachperiodis shown for the growth rate of value added (per year), it can be assumed that the effects of short-term business cycles are partially excluded from the results.

Value added D

Value added = net operating income (operating profits-interests paid and others) + gross salary [director’s salary + employee’s salary (including bonuses)] + benefits package + movable assets, real estate, borrowing and lending fees + interests paid and others + taxes and dues

FromtheMOF,Financial Statements Statistics of Corporations by Industry, Annually, the real value of the results of the above calculation is calculated using the GDP deflator (fixed sequence based on 2000 data) in the Annual Report on NationalAccountsissuedbytheCabinetOffice.Fordatabasedontheyear2000,thenumbersforfiscal1993andearlierisnotavailable,thereforetheywereretroactivelycalculatedusingthegrowthrateofthedeflatorbasedon1995(93SNA)and1990 (68SNA). Additionally, since fiscal 2007, it became possible to declare executives’ bonuses as costs, so executives’ bonuses are included in the gross salary.

Contribution of capital input D

Contribution of capital input = {1 - (gross salary + benefits package) / value added} x growth rate of tangible fixed assets (real value, excluding land and construction in progress)

The real value for tangible fixed assets is calculated using the capital investment deflator (fixed sequence based on 2000 data) in the Annual Report on National AccountsissuedbytheCabinetOffice.Fordatabasedontheyear2000,thenumbersforfiscal1993andearlierisnotavailable,thereforetheywereretroactivelycalculatedusingthegrowthrateofthedeflatorbasedon1995(93SNA)and1990(68SNA).Additionally,sincethecostdepreciationfortangiblefixedassetsis unknown, the estimated depreciation rate is calculated including intangible fixed assets.

Tangible fixed assets (real) = the previous fiscal year’s tangible fixed assets (real) + capital investment / capital invest-ment deflator - the previous fiscal year’s tangible fixed assets (real) × depreciation rate

Capital investment = tangible fixed assets (nominal) - the previous fiscal year’s tangible fixed assets (nominal) + cost depreciation

Depreciation rate = cost depreciation / {the previous quarter’s end’s tangible fixed assets (nominal) + the previous quarter’s end’s intangible fixed assets}

Contribution of labor input D

Contribution of labor input = (gross salary + benefits package) / value added x growth rate of total employee numbers (executives + employees)

Contribution of TFP D

Contribution of TFP = growth rate of value added - contribution of capital injection - contribution of labor injection

References: SME Agency, 2003 White Paper on Small and Medium Enterprises in Japan; Toshihiro Nagayama (2002), Changes in Industrial Structure and Company Size, Ministry of Finance, Policy Research Institute, Financial Review No. 62 (June 2002).

282

Appended note 2-1-2 Growth rate of value added by large enterprises and the contribution of capital, labor and TFP

Source: MOF, Financial Statements Statistics of Corporations by Industry.Notes: 1. Ratio of TFP rise = ratio of value added increase-capital allocation ratio × ratio of increase of tangible fixed assets

(excluding land and construction in progress) - labor allocation ratio × growth rate of total number of employees (executives × employees).

2. Enterprises with capital of less than ¥100 million are defined as SMEs and enterprises with capital of ¥100 million or more are defined as large enterprises.

3. Gross value added is adjusted in real terms using the year 2000 as a base year and the growth rate is calculated from this.

4. For these measurements, business cycle factors should have been excluded taking into consideration operation rates and working hours, however, as statistics for these by company scale were unavailable, these factors were ignored.

-2

0

2

4

6

8

10

12

14

(%)

1960s 1970s 1980s 1990s 2000s

Capital input (large enterprises)

6.66.6

2.82.8 2.42.41.61.6

3.63.6

0.60.6 1.71.7

1.11.1

1.41.4

2.02.0 0.30.3

-1.3-1.3

0.30.2

2.62.6

Labor input (large enterprises) TFP (large enterprises)

Grow

th o

f val

ue a

dded

Appended note 2-1-3 Changes in the number of researchers per 10,000 employees by company scale (in manufacturing)

0

200

400

600

800

1,000

1,200

70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

(Fiscal year)

Large enterprises SMEs(Persons)

Source: MIC, Survey of Research and Development (2008).Notes: 1. Enterprises with workforces of 1-299 are considered SMEs and those with workforces of 300 or more are considered

large enterprises. 2. Data for enterprises engaging in R&D. Enterprises engaged in R&D are defined as enterprises that responded that

they use R&D spending in-house (internally) or spent R&D funds externally.

Appended notes

283

Appended note 2-2-1 Number of trading partners (by employee size)Enterprises with larger workforces tend to have more trading partners



2.8

2.9

0% 100%

Up to 20

21–50

51–100

101–300

301 or more

Up to 20

21–50

51–100

101–300s

301 or more

1-5 6-10

13.613.6

11.511.5

12.012.0

11.711.7

8.08.0

16.916.9

10.910.9

8.78.7

6.96.9

9.89.8

9.49.4

7.77.7

8.18.1

8.58.5

20.420.4

15.415.4

10.610.6

6.86.8

6.96.9

19.919.9

18.218.2

15.815.8

13.913.9

7.07.0

35.235.2

33.133.1

26.126.1

18.218.2

11.111.1

14.214.2

11.711.7

10.510.5

8.88.8

8.08.0

15.215.2

19.019.0

19.819.8

18.418.4

12.012.0

18.818.8

17.817.8

17.017.0

14.614.6

12.712.7

9.59.5

15.615.6

23.323.3

26.126.1

24.524.5

23.823.8

31.431.4

37.037.0

42.942.9

55.955.9

6.06.0

11.511.5

23.623.6

42.642.6

Cus

tom

erS

upp

lier

11-30 31-50 51-100 101 or more

Appended note 2-2-2 Trading partners compared to five years ago (by employee size)Enterprises with larger workforces tend to have slightly more trading partners compared to five years ago



1.9

2.0

2.3

1.4

2.3

3.3

1.8

1.3

1.1

0.5

1.4

0.7

0.4

0.3

0.5

0% 100%

Up to 20

21–50

51–100

101-300

301 or more

Up to 20

21–50

51–100

101-300

301 or more

Significant increase

3.63.6

4.44.4

4.14.1

3.33.3

7.57.5

34.234.2

37.537.5

39.439.4

39.839.8

46.346.3

29.029.0

32.232.2

33.133.1

33.733.7

42.342.3

35.335.3

36.436.4

37.937.9

42.042.0 13.913.9

38.338.3

54.354.3

54.054.0

54.054.0

54.454.4

45.645.6

23.623.6

19.919.9

17.217.2

7.57.5

13.413.4

11.111.1

10.110.1

10.210.2

9.39.3

Cus

tom

erS

upp

lier

Increase No change Decrease Significant decrease

284

2.02.0

2.1

1.4

2.12.1

2.2

1.3

0.5

1.0

1.0

1.1

1.3

1.8

1.0

2.3

0.9

1.4

1.4

0% 100%

Up to 20

21–50

51–100

101-300

301 or more

Up to 20

21–50

51–100

101-300

301 or more

Same municipality

Domestic

4.24.2

3.43.4

10.410.4

7.67.6

4.54.5

3.23.20.50.5

12.812.8

9.69.6

7.07.0

4.74.7

2.82.8

10.910.9

11.911.9

9.09.0

8.48.4

8.78.7

11.911.9

13.813.8

11.211.2

8.78.7

6.16.1

13.713.7

19.819.8

17.717.7

15.715.7

17.017.0

17.417.4

24.424.4

22.922.9

18.118.1

15.515.5

49.449.4

47.047.0

51.351.3

49.449.4

46.146.1

38.738.7

37.337.3

43.843.8

48.148.1

47.947.9

12.012.0

10.610.6

12.012.0

17.717.7

25.825.8

10.410.4

10.610.6

14.114.1

20.120.1

25.725.7

3.83.8

Cus

tom

erS

upp

lier

Neighboring municipality Same prefecture Neighboring prefecture

Overseas Domestic and overseas

Appended note 2-2-3 Geographical location of newly acquired trading partners (by employee size)

The more customers a company has, the more it tends to develop geographically distant new partners



Appended note 2-2-4 Relationship between the increase in trading partners and the geographical location of newly acquired partners

Enterprises which are seeing increased customers tend to develop geographically distant new partners

1.0

1.1

1.6

1.3

1.5

1.0

0.0

0% 100%

Significant increase

Increase

No change

Reduction

Significant decrease

Same municipality Neighboring municipality

Domestic Overseas

2.82.8

3.43.4

5.65.6

3.33.3

4.54.5

5.95.9

10.310.3

13.513.5

5.65.6

8.88.8

11.711.7

11.111.1

18.318.3

11.811.8

16.916.9

18.318.3

18.318.3

13.513.5

59.559.5

51.651.6

47.347.3

45.145.1

38.938.9

17.317.3

15.815.8

12.512.5

10.810.8

10.310.3

Domestic and overseas

Same prefecture Neighboring prefecture



Appended notes

285

Appended note 2-2-5 Timing of integration of manufacturing and services (by employee size)

In recent years, there have been more enterprises with smaller workforces to enter the services and manufacturing fields




0.0

1.4

0.0

0% 100%

Up to 20

21-50

51-100

101-300

301 or more

Up to 20

21-50

51-100

101-300

301 or more

Pre-1970s

25.225.2

37.637.6

39.939.9

46.746.7

44.644.6

38.238.2

46.346.3

60.960.9

67.467.4

38.538.5

22.022.0

17.817.8

16.316.3

19.219.2

20.520.5

14.614.6

22.122.1

13.013.0

16.316.3

15.415.4

26.126.1

19.619.6

20.420.4

16.316.3

19.319.3

22.822.8

16.216.2

14.514.5

11.611.6

30.830.8

15.615.6

16.116.1

13.813.8

11.811.8

10.810.8

17.117.1

8.88.8

10.110.1

4.74.7

11.011.0

9.09.0

9.59.5

5.95.9

4.84.8

7.37.3

6.66.6

15.415.4

Tim

ing

of e

ntry

into

ser

vice

s fi

eld

from

man

ufac

turin

gTi

min

g of

ent

ry in

to m

anuf

actu

ring

field

from

non

-man

ufac

turin

g in

dust

ries

1980s 1990s 2000-2004 Since 2005

67.6

26.1

13.0 14.3

23.0

3.3

11.3

20.1

14.0

56.1

24.4

14.712.7

41.2

6.5

19.922.0

12.2

0

10

20

30

40

50

60

70

80

(%)

Redu

ction

of

trad

ing

cost

s

Redu

ction

of

dist

ribut

ion c

osts

Only

a sm

all a

mou

nt o

f

inve

stm

ent i

s req

uire

d

Do n

ot h

ave

to h

old o

nto

unn

eces

sary

stoc

k

Easy

to a

cqui

re

new

cus

tom

ers

A m

etho

d fo

r

dev

elopi

ng m

arke

ts o

vers

eas

Mak

es it

pos

sible

to d

evelo

p a

nich

e m

arke

t

Easy

to g

rasp

nee

ds o

f cus

tom

ers

Othe

rs

Subcontractors Non-subcontractors

Appended note 2-2-6 Benefits of conducting electronic commerce (in terms of the presence or absence of subcontractors)

The number of subcontractors that consider “reduction of trading costs” to be a benefit is relatively large compared to non-subcontractors, while among non-subcontractors, the number that consider “easy to acquire new customers” to be a benefit is relatively large compared to subcontractors


Notes: 1. Here the term electronic commerce refers to the placing and receiving of orders using the Internet or a leased line, but does not necessarily include settlement of accounts.

2. Subcontractors refer to affiliated and partner enterprises which larger enterprises contract to outsource the production and processing of goods and parts.


286

Appended note 2-2-7 Percentage of export amount in export planning and sales (FY2008)

Although export plans have been revised downward, no significant change in the percentage of exports accounting for sales has been observed

Export plans compared to previous survey (Unit: %)

March survey June survey September survey December survey March 2009 survey (estimated)

AllAll industries — 1.59 0.50 -2.81 -9.80

Manufacturing — 0.86 0.54 -3.94 -9.66

Large enterprisesAll industries — 1.59 0.77 -2.56 -10.21

Manufacturing — 0.81 0.71 -3.86 -9.93

Medium-sized enterprises

All industries — 1.40 -1.29 -3.85 -9.13

Manufacturing — 1.61 -0.51 -4.03 -9.91

SMEsAll industries — 1.83 -0.39 -4.56 -5.56

Manufacturing — 0.49 -0.62 -5.12 -5.03

Percentage of exports accounting for sales (Unit: %)

March survey June survey September survey December survey March 2009 survey (estimated)

AllAll industries 10.45 10.43 10.42 10.28 9.73

Manufacturing 23.19 23.02 23.00 22.83 22.30

Large enterprisesAll industries 15.68 15.53 15.51 15.33 14.59

Manufacturing 29.38 29.06 28.99 28.86 28.40

Medium-sized enterprises

All industries 5.09 5.11 5.02 4.91 4.68

Manufacturing 12.10 12.13 12.07 11.91 11.54

SMEsAll industries 2.82 2.86 2.85 2.76 2.68

Manufacturing 7.80 7.78 7.77 7.57 7.49

Source: Bank of Japan, National Short-Term Economic Survey of Enterprises in Japan.Note: Here, large enterprises refers to enterprises with capital of ¥1 billion or more; medium-sized enterprises refers to

enterprises with capital from ¥100 million to less than ¥1 billion; and SMEs refers to enterprises with capital from ¥20 million to less than ¥100 million.

Appended note 2-2-8 Percentage of enterprises that conduct direct exportIn regards to large enterprises and SMEs that conduct direct exports, the percentage for large enterprises is about twice as high as that of SMEs in manufacturing, but there is hardly any difference between the two in non-manufacturing

Source: Recompiled from METI’s 2007 Basic Survey of Japanese Business Structure and Activities (2009).Note: Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law.

26.7

10.3

19.4

63.8

13.6

25.3

0

10

20

30

40

50

60

70

Manufacturing Non-manufacturing All industries

SMEsLarge enterprises(%)

Appended notes

287

Appended note 2-2-9 Overseas sales by employee sizeEnterprises with larger workforces are more likely to conduct overseas sales




12.915.1

25.2

57.8

11.815.6

33.4

50.4

15.318.3

35.3

46.2

22.7 21.0

36.838.9

28.124.0

34.138.2

0

10

20

30

40

50

60

70

Conducts direct exports Conducts indirect exports Exports products to overseas market via business partner


Up to 20 21-50 51-100 101-300 301 or more(%)

Appended note 2-2-10 Overseas sales by employee size (classified by whether patents have been obtained or not)

Enterprises with patents are more likely to engage in overseas exports

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey of Market Capture and Intellectual Property (December 2008).Notes: 1. Direct export refers to exports where customs clearance is carried out in the company’s own name. Indirect export



Conducts direct export Conducts indirect export Exports products to overseas market via business partner


28.8 28.2

33.9 34.6

15.4

20.1

38.342.5

7.210.3

31.9

57.3

0

10

20

30

40

50

60

70

Holding patents Used to hold patents but no longer hold any Never acquired a patent before(%)

288

Appended note 2-2-11 [1] Trends in the number of enterprises expanding overseas

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan.Note: Calculates the number of companies that have subsidiaries or affiliates overseas.

549

0

2,000

4,000

6,000

8,000

10,000

12,000

96 0601

SMEs Large enterprises Number of enterprises

(Year)

5,4315,4316,3696,369

2,2312,231

7,5517,551

2,5872,587

Appended note 2-2-11 [2] Number of enterprises expanding overseas (companies only)

Number of enterprises expanding overseas Percentage of totalDivisions Major groups SMEs Large enterprises Total SMEs Large enterprisesMining Mining 20 3 23 0.26 0.12Construction Construction work, general including public and private construction work 93 49 142 1.23 1.89

Construction work by specialist contractor, except equipment installation work 61 4 65 0.81 0.15Equipment installation work 102 40 142 1.35 1.55

Manufacturing Manufacture of food 141 59 200 1.87 2.28Manufacture of beverages, tobacco and feed 18 18 36 0.24 0.70Manufacture of textile mill products, except apparel and other finished products made from fabrics and similar materials 98 15 113 1.30 0.58

Manufacture of apparel and other finished products made from fabrics and similar materials 200 13 213 2.65 0.50

Manufacture of lumber and wood products, except furniture 30 7 37 0.40 0.27Manufacture of furniture and fixtures 43 11 54 0.57 0.43Manufacture of pulp, paper and paper products 63 28 91 0.83 1.08Printing and allied industries 75 13 88 0.99 0.50Manufacture of chemical and allied products 182 122 304 2.41 4.72Manufacture of petroleum and coal products 18 7 25 0.24 0.27Manufacture of plastic products, except otherwise classified 251 46 297 3.32 1.78Manufacture of rubber products 77 33 110 1.02 1.28Manufacture of leather tanning, leather products and fur skins 41 2 43 0.54 0.08Manufacture of ceramic; stone and clay products 69 32 101 0.91 1.24Manufacture of iron and steel 66 32 98 0.87 1.24Manufacture of non-ferrous metals and products 74 36 110 0.98 1.39Manufacture of fabricated metal products 305 53 358 4.04 2.05Manufacture of general machinery 622 181 803 8.24 7.00Manufacture of electrical machinery; equipment and supplies 247 105 352 3.27 4.06Manufacture of information and communication electronics equipment 85 51 136 1.13 1.97Electronic parts and devices 258 89 347 3.42 3.44Manufacture of transportation equipment 243 160 403 3.22 6.18Manufacture of precision instruments and machinery 150 56 206 1.99 2.16Miscellaneous manufacturing industries 128 27 155 1.70 1.04

Electricity, gas, heat supply, and water

Production; transmission and distribution of electricity 6 8 14 0.08 0.31Manufacturing of gas — 2 2 — 0.08Heat supply — — — — —Collection, purification and distribution of water and sewage collection, processing and disposal — — — — —

Appended notes

289

Number of enterprises expanding overseas Percentage of totalDivisions Major groups SMEs Large enterprises Total SMEs Large enterprisesInformation and communications

Communications 22 4 26 0.29 0.15Broadcasting — 5 5 — 0.19Information services 292 145 437 3.87 5.60Internet based services 26 6 32 0.34 0.23Video picture, sound information, character information production and distribution 43 27 70 0.57 1.04

Transport Railway transport 1 8 9 0.01 0.31Road passenger transport 6 2 8 0.08 0.08Road freight transport 47 31 78 0.62 1.20Water transport 153 7 160 2.03 0.27Air transport 4 5 9 0.05 0.19Warehousing 19 8 27 0.25 0.31Services incidental to transport 76 18 94 1.01 0.70

Wholesale and retail trade

Wholesale trade; general merchandise 31 18 49 0.41 0.70Wholesale trade (textile and apparel) 275 60 335 3.64 2.32Wholesale trade (food and beverages) 166 32 198 2.20 1.24Wholesale trade (building materials; minerals and metals etc.) 358 137 495 4.74 5.30Wholesale trade (machinery and equipment) 596 246 842 7.89 9.51Miscellaneous wholesale trade 331 80 411 4.38 3.09Retail trade; general merchandise 5 14 19 0.07 0.54Retail trade (dry goods; apparel and apparel accessories) 58 31 89 0.77 1.20Retail trade (food and beverages) 69 24 93 0.91 0.93Retail trade (motor vehicles and bicycles) 41 12 53 0.54 0.46Retail trade (furniture, household utensil and household appliance) 41 14 55 0.54 0.54Miscellaneous retail trade 118 39 157 1.56 1.51

Finance and insurance

Banking 1 21 22 0.01 0.81Financial institutions for cooperative organizations — — — — —Institutions dealing with postal savings; government-related financial institutions — — — — —Non-deposit money corporations engaged in the provision of finance, credit and investment 22 10 32 0.29 0.39

Securities and futures commodity dealing activities 43 18 61 0.57 0.70Financial auxiliaries 2 1 3 0.03 0.04Insurance institutions, including insurance agents, brokers and services 25 16 41 0.33 0.62

Real estate Real estate agencies 60 11 71 0.79 0.43Real estate lessors and managers 124 6 130 1.64 0.23


General eating and drinking places 53 28 81 0.70 1.08Spree eating and drinking places 18 2 20 0.24 0.08Accommodations 20 8 28 0.26 0.31

Medical, healthcare and welfare

Medical and other health services 17 3 20 0.23 0.12Public health and hygiene — — — — —Social insurance and social welfare 5 — 5 0.07 —


School education 2 — 2 0.03 —Miscellaneous education, learning support 36 9 45 0.48 0.35

Compound services

Postal services (except otherwise classified) — — — — —Cooperative associations (not classified elsewhere) — — — — —

Services (n.e.c.) Professional services (n.e.c.) 239 53 292 3.17 2.05Scientific and development research institutes 15 10 25 0.20 0.39Laundry, beauty and bath services 34 7 41 0.45 0.27Miscellaneous living-related and personal services 59 9 68 0.78 0.35Services for amusement and hobbies 22 13 35 0.29 0.50Waste disposal business 17 1 18 0.23 0.04Automobile maintenance services 18 — 18 0.24 —Machine etc. repair services (except otherwise classified) 16 11 27 0.21 0.43Goods rental and leasing 22 27 49 0.29 1.04Advertising 23 11 34 0.30 0.43Miscellaneous business services 114 37 151 1.51 1.43Political, business and cultural organizations — — — — —Religion — — — — —Miscellaneous services — — — — —

Total 7,551 2,587 10,138 100.00 100.00

Source: Recompiled from MIC, 2006 Establishment and Enterprise Census of Japan (2007).Note: Calculates the number of companies that have subsidiaries or affiliates overseas.

290

Appended note 2-2-12 Collaboration partners sought by SMEs by purpose

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Statistics based only on SMEs. 2. Statistics based only on firms that answered that they collaborate with outside entities for the purpose for developing

new technologies, new products and new services. 3. Due to multiple responses, the total exceeds 100.

73.1

28.7

51.6

18.521.7

9.2

27.1

10.9

3.3

9.2

2.1 2.9

9.4 10.1

2.6

51.8

34.3

50.7

18.7

20.9

13.8

33.4

12.9

3.1

10.8

5.4 3.6

9.4 12.7

3.5

55.7

49.1

57.5

16.6

23.3

10.1

22.5

10.52.7 8.3 3.7 4.3 7.1 9.9

3.1

46.8

23.4

31.9

8.5

21.4

10.6

19.1

8.54.3

6.4 6.4 6.4

10.6

8.5

2.10

10

20

30

40

50

60

70

80

Clien

ts o

r c

usto

mer

s

Outs

ourc

e

Supp

lier

Othe

r com

pany

from

sam

e in

dust

ryOt

her c

ompa

ny

from

oth

er in

dust

ryAd

min

istra

tion

or

adm

inist

ratio

n-as

sista

nce

org

aniza

tion

Unive

rsity

or

pub

lic re

sear

ch in

stitu

tion

Desig

n fir

m

Adve

rtisin

g fir

m

Cons

ultin

g

Atto

rney

or

pat

ent a

ttorn

eyOt

her s

pecia

lized

serv

ice in

dust

ryM

ajor t

radi

ng c

ompa

nyM

ediu

m-s

ized

or

small

and

med

ium

trad

ing

com

pany

Dist

ribut

ion fi

rm

To obtain ideas and inspiration from the collaboration enterprise

To create an effective development framework for new technology, etc.

To compensate for insufficient management resources of own company

Other

(%)

Appended note 2-3-1 Percentage of patent applications worldwide accounted for by Japan, the U.S., Europe, China and South Korea

The United States Patent and Trademark Office has the highest number of patent applications in the world, occupying 76.3% of the total combined with Japan, Europe, China and South Korea; Japanese nationals apply for the highest number of applications, account for 87.4% of the total combined with nationals from the U.S., Europe, China and South Korea

0

20

40

60

80

100

120

140

160

180

200

Number of applications received by each country’s patent office

Japan, U.S., Europe, China and South Korea: 87.4%

Japan, U.S., Europe, China, South Korea 76.3%

(10,000 cases)

Number of patent applications worldwide (2006): approx. 1.76 million cases

U.S. applicants: 391,000 cases, 22.1%U.S. applicants: 391,000 cases, 22.1%

Japanese applicants: 514,000 cases, 29.1%Japanese applicants: 514,000 cases, 29.1%

Chinese applicants: 129,000 cases, 7.3%Chinese applicants: 129,000 cases, 7.3%

South Korean applicants: 173,000 cases, 9.8%South Korean applicants: 173,000 cases, 9.8%

European applicants: 336,000 cases, 19.0%European applicants: 336,000 cases, 19.0%

Other: 222,000 cases, 12.6%Other: 222,000 cases, 12.6%

USPTO: 426,000 cases, 24.1%USPTO: 426,000 cases, 24.1%

JPO: 409,000 cases, 23.2%JPO: 409,000 cases, 23.2%

SIPO: 211,00 cases, 11.9%SIPO: 211,00 cases, 11.9%

KIPO: 166,000 cases, 9.4%KIPO: 166,000 cases, 9.4%

EPO: 135,000 cases, 7.7%EPO: 135,000 cases, 7.7%

Other: 418,000 cases, 23.7%Other: 418,000 cases, 23.7%

Number of applications submitted by applicants of each country

Source: World Patent Report (2008).Notes: 1. EPO (European Patent Office), KIPO (Korean Intellectual Property Office), SIPO (State Intellectual Property Office of

the People’s Republic of China), JPO (Japan Patent Office), USPTO (United States Patent and Trademark Office). 2. European applicants refers to those who belong to the EPC (31 countries as of the end of 2006).

Appended notes

291

Appended note 2-3-2 Breakdown of patent applications by Japanese nationalsAlthough the number of patent applications by Japanese nationals has been decreasing recently, applications submitted overseas have been on the rise

Source: WIPO Statistic database (December 2008).Note: Overseas applications were calculated by subtracting the number of domestic patent applications in Japan from the

number of patent applications submitted by Japanese nationals.

0

100,000

200,000

300,000

400,000

500,000

600,000

98 99 00 01 02 03 04 05 06 07

Overseas applications Domestic applications(Cases)

(Year)

450,932 449,916

489,187503,350

481,582 484,152507,114

524,427

357,379357,379 357,531357,531384,201384,201

382,815382,815365,204365,204 358,184358,184

368.416368.416367,960367,960

514,212

347,060347,060

501,017

333.498333.498

93,55393,553 92,38592,385 104,986104,986 120,535120,535 116,378116,378 125,968125,968 138,698138,698 156,467156,467 167,152167,152 167,519167,519

Appended note 2-3-3 Number of domestic patent applications per companyThe number of patent applications submitted domestically by SMEs is significantly lower than those of large enterprises

Source: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008).Notes: 1. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 2. Percentages calculated based on the number of domestic patent applications divided by the number of enterprises

submitting domestic patent applications.

4.4 1.3 2.0 3.6 4.1 5.3 6.1 6.2 5.6 9.9 3.6 4.2 6.0 7.2 2.2 2.7

31.9 27.540.1 31.6

169.1

133.0

183.8

43.9

116.8

391.6

198.3

128.4

87.6 84.9

12.135.3

0

50

100

150

200

250

300

350

400

450


All in

dust

ries

Cons

truct

ion

Text

iles,

pul

p an

d pa

per

pro

duct

sPh

arm

aceu

ticals

Chem

icals

Petro

leum

and

coa

l pro

duct

s, pl

astic

s,

rubb

er, c

eram

icsIro

n an

d st

eel,

non

-ferro

us m

etals

Fabr

icate

d m

etals

Mac

hine

ry in

dust

ryEl

ectri

cal

mac

hine

ryTr

ansp

ort

equ

ipm

ent

Prec

ision

inst

rum

ents

Othe

r

man

ufac

turin

gIn

form

ation

and

com

mun

icatio

ns in

dust

ry

Food

man

ufac

ture

Who

lesale

and

reta

il

Othe

r

non-

man

ufac

turin

g

5.7

156.0

0

20

40

60

80

100

120

140

160

180

(Cases) (Cases)

292

Appended note 2-3-4 Regarding statistical techniques in the Patent Office’s Survey of Intellectual Property-Related Activities

1. Statistics are based on the 18 industry types appearing in the Survey of Intellectual Property-Related Activities, excluding“Education,TechnologyLicensingOrganization(TLO),publicresearchinstitutionsandgovernment,”and“Individuals.”

2. LargeenterprisesreferstothoseotherthanSMEsasdefinedbytheSmallandMediumEnterpriseBasicLaw.3. OnlySMEsthatselected“havingnogroupenterprise”havebeenincluded;SMEsthatselected“havingagroupenter-

prise” have been excluded.4. Figures that lie outside the range of 10 times the standard deviation were classed as anomalies and excluded from

calculations.

Appended note 2-3-5 Reasons for keeping patent applications to a minimum and protecting intellectual property as trade secrets

Compared to non-subcontracting companies, a relatively higher percentage of subcontracting companies is cautious about the “leakage of technical information” and “keep patent applications to a minimum and protect intellectual property as trade secrets”

62.1

12.1

26.123.3

42.5

16.8

2.4

57.6

10.7

26.023.2

45.2

9.0

2.5

0

10

20

30

40

50

60

70


It may lead to the leakage of technical

information

It expires in 20 years

Not submitted due to the difficulty

in commercializing

It is difficult to submit a patent application due to

relations with clients

High cost Insufficient know-how Other

Non-subcontracting companies(%)

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Notes: 1. Statistics based only on answers from enterprises that answered “keep patent applications to a minimum and protect

intellectual property as trade secrets.” 2. Statistics based only on SME manufacturers. 3. Due to multiple responses, the total exceeds 100.

Appended notes

293

Appended note 2-3-6 Number of acquired domestic patents per companyThe number of acquired domestic patents for SMEs is significantly lower than that of large enterprises

Source: Recompiled from Japan Patent Office, Survey of Intellectual Property-Related Activities 2007 (2008).Notes: 1. Large enterprises refers to those other than SMEs as defined by the Small and Medium Enterprise Basic Law. 2. Percentages calculated based on the number of acquired domestic patents divided by the number of enterprises

with acquired domestic patents.

25.98.8 5.1 10.9

25.6 24.7 22.0 15.1 24.1 15.6 14.6 16.3 8.7 3.316.4 7.4

172.2

67.283.0

62.5

312.3

228.6

158.8

199.8

333.8

291.9

251.4272.6

209.2

31.7 35.9

62.6

0

50

100

150

200

250

300

350

400


All in

dust

ries

Cons

truct

ionFo

od m

anuf

actu

reTe

xtile

s, pu

lp

and

pap

er p

rodu

cts

Phar

mac

eutic

alsCh

emica

lsPe

troleu

m a

nd c

oal

pro

duct

s, pl

astic

s,

rubb

er, c

eram

icsIro

n an

d st

eel,

non

-ferro

us m

etals

Fabr

icate

d m

etals

Mac

hine

ry in

dust

ryEl

ectri

cal

mac

hine

ryTr

ansp

ort

equ

ipm

ent

Prec

ision

inst

rum

ents

Othe

r

man

ufac

turin

gIn

form

ation

and

com

mun

icatio

ns in

dust

ryW

holes

ale a

nd re

tail

Othe

r

non

-man

ufac

turin

g

17.7

209.3

0

50

100

150

200

250

(Cases)(Cases)

Appended note 2-3-7 Conditions surrounding the acquisition of patents (by number of employees)

The larger the scale of the enterprise, the more likely it is to obtain more patents

Source: Mitsubishi UFJ Research and Consulting Co., Ltd., Survey on Market Capture and Intellectual Property (December 2008).Note: Statistics based only on SMEs.

0% 100%

Up to 20

21-50

51-100

101-300

301 or more

Holding patents Used to hold patents but no longer hold any Never acquired a patent before

24.724.7

26.526.5

32.932.9

48.148.1

58.558.5

9.99.9

13.313.3

13.813.8

11.311.3

6.76.7

65.465.4

60.360.3

53.353.3

40.740.7

34.834.8

294

44.6 44.6

12.6

29.5

19.0 17.8

9.1

23.5

9.1

8.6

2.4

16.6 16.0

2.50.9

1.3

32.334.9

2.4

13.5

7.6

23.4

8.1

17.8

6.9

16.3

1.4

12.4

7.52.4

0.94.8

24.527.1

2.0

8.7

5.8

28.6

7.8

14.8

8.6

18.7

1.0

8.7

3.9 2.90.8

10.5

0

10

20

30

40

50

Holding patents

Prom

otion

of r

esea

rch

and

dev

elopm

ent i

n ac

quiri

ng

inte

llect

ual p

rope

rty

Inte

grat

ed im

plem

enta

tion

of r

esea

rch

and

deve

lopm

ent

stra

tegy

, and

bus

ines

s stra

tegy

Stra

tegi

c

subm

ission

of p

aten

t

app

licat

ions o

vers

eas

Acqu

iring

bas

ic pa

tent

sEn

hanc

ing

rese

arch

in p

rior a

rt an

d ac

quiri

ng

per

iphe

ral p

aten

ts

Deve

lopin

g an

d se

curin

g

in-h

ouse

per

sonn

el th

at a

re

fam

iliar w

ith in

telle

ctua

l pro

perty

Resp

ondi

ng to

em

ploy

ee in

vent

ionUs

ing

spec

ialist

s

such

as l

awye

rs o

r

pat

ent a

ttorn

eys

Secu

ring

roya

lty in

com

e

Aggr

essiv

e in

trodu

ction

of t

echn

ology

from

ext

erna

l sou

rces

Aggr

essiv

e

resp

onse

to c

ross

licen

sing

Enha

ncin

g m

easu

res

aga

inst

cou

nter

feit

goo

ds a

nd b

ootle

gs

Litig

ation

mea

sure

s aga

inst

pat

ent r

ight

s inf

ringe

men

tFin

ancin

g fro

m

coll

ater

aliza

tion

of

inte

llect

ual p

rope

rtyFin

ancin

g fro

m

inte

llect

ual p

rope

rty

secu

ritiza

tion Othe

r

Used to hold patents but no longer hold any Never acquired a patent before(%)

Appended note 2-3-8 Important issues in intellectual property strategies according to whether or not patents have been acquired

Enterprises with patents particularly emphasize “integrated implementation of research and development strategy, and business strategy,” and “promotion of research and development in acquiring intellectual property,” whereas a large percentage of enterprises without patents place more importance on “developing and securing in-house personnel that are familiar with intellectual property”; It is also noted that enterprises that have never obtained patents place more importance than those that have on the “aggressive introduction of technology from external sources”


Appended note 2-4-1 Trends in the number of students in technical collegesThe number of students in technical colleges has been on the rise and reached 59,000 students in 2008, representing an approximately 20% increase from 48,000 in 1985


0

10

20

30

40

50

60

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

(1,000 persons)

(Year)

4848 4949 5050 5151 5252 5353 5454 5555 5555 5656 5656 5656 5656 5656 5656 5757 5757 5757 5858 5959 5959 5959 5959 5959

Appended notes

295

Appended note 2-4-2 Changes in the post-graduation paths of high school students studying technical subjects

The job-placement rate declined from 81.0% in 1985 to 62.6% in 2008; The number of newly employed has decreased from 109,000 to 55,000

7.4 8.6

14.716.9 17.2

81.0 78.8

68.0

55.153.9

62.6

0

20

40

60

80

100

120

140

160

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 080

10

20

30

40

50

60

70

80

90

1010 1010 1111 1111 1010 99 99 99 1010 1010 1212 1212 1313 1414 1515 1717 1818 1919 1919 1818 1717 1616 1616 1515

9898 9292 8787 8282 78786969 6262 6161 5858 5454 5555 5555 5656 5656 5555

109109118118 114114 112112 116116 117117 117117 117117 108108

3232 31313434

3434 33333434 3636 3333 3030 2525 2222 1818

16161919 2121 2323 2222 2222 2323 2525

28283131

32323232

(1,000 persons)

(Year)

(%)


Newly employed

Other Employment rate (right axis)

Percentage of students advancing to university and other institutions. (right axis)


university or junior college. 2. Other refers to the total number of students who advanced to special training colleges (special courses), special

training colleges (general courses), or public human resource development facilities, those engaged in temporary work, and others.

Appended note 2-4-3 Changes in the post-graduation paths of technical college students

While the advancement rate has increased to 42.5% in 2008 from 9.6% in 1985, the job placement rate has decreased to 54.1% in 2008 from 89.0% in 1985 and the number of newly employed has decreased to 5,500 people in 2008 from 7,100 from 1985


university or junior college. 2. Other refers to the total number of students who advanced to special training colleges (special courses), special training

colleges (general courses), or public vocational training facilities, those engaged in temporary work, and others.

(Year)

0.1 0.1 0.20.2 0.2

0.2 0.2 0.2 0.2

0.4 0.4 0.4 0.4 0.5 0.6 0.7 0.6 0.7 0.7 0.7 0.5 0.5 0.4 0.3

9.612.4

21.4

33.6

40.9 42.5

89.085.8

74.2

59.7

53.8 54.1

0

2

4

6

8

10

12

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 080

10

20

30

40

50

60

70

80

90

(1,000 persons)

0.80.8 0.80.8 1.01.0 1.11.10.80.8 0.90.9 1.31.3 1.41.4 1.61.6 2.02.0 2.22.2 2.52.5 2.92.92.72.7 3.13.1 3.33.3 3.43.4 3.93.93.93.93.63.64.24.24.14.1 4.34.3 4.34.3

7.17.1 7.47.4 7.47.47.87.8 7.87.8 7.77.7 7.77.7

7.77.7 7.67.6

7.57.5 7.67.6 7.37.3 7.17.1 6.76.7 5.95.9 5.85.8 5.55.5 5.45.46.26.2

5.55.5 5.55.55.45.4 5.45.4 5.55.5

(%)


Newly employed

Other Employment rate (right axis)

Percentage of students advancing to university and other institutions (right axis)

296

Appended note 2-5-1 Attributes of SMEs that responded to the Financing Conditions Survey (Median value)

SMEs as a whole SMEs that conduct R&D SMEs that don’t conduct R&D

Number of employees (persons) 34 44 28

Sales volume (¥1,000) 1,306,328 1,537,596 1,205,922

Ratio of ordinary profit to sales (%) 1.5 1.9 1.4

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Notes: 1. Statistics based only on SMEs. 2. Each figure is the median value in the sample. 3. Ratio of ordinary profit to sales = ordinary profit / sales volume × 100.

Appended note 2-5-2 Types of venture funds according to SMRJ fund projectsFunds with focused investment themes have been on the increase since fiscal 1999

Source: SMRJ (2008).Note: On the premise that the investment target company is in the early stage (under seven years since establishment),

SMRJ categorizes funds that target specific business types such as IT and biotechnology as “business specific,” funds that support university-launched ventures as “academic-industrial alliance,” funds that support local companies as “community based,” and funds that chose investment targets from a wide range with early stage being the only condition as “early stage company.”

(Fiscal year)

Ratio of venture funds by typeChanges in the establishment of venture funds by type

5.6

8.68.6

0

50

100

150

200

250

300

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

(¥100 million)

Business specific Early stage company Academic-industrial alliance Community based

33.2%33.2%

16.1%16.1%

31.7%31.7%

19.1%19.1%

25.025.0 15.015.0 21.621.6 34.334.362.162.1

106.3106.3128.0128.0

51.051.020.020.0

35.035.0 83.583.524.024.0 20.020.0

64.264.238.138.1

65.165.1

67.167.1

20.020.0

76.476.4

10.010.0

118.0118.0

20.020.0

10.210.215.015.0

20.020.020.420.4

60.260.2

56.556.5

10.010.0

24.024.0

Appended note 2-5-3 Trends of newly listed companiesFrom 1999 to 2007, more than 100 companies were newly listed annually, however, the number dropped significantly to 55 in 2008

(Unit: companies)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Tokyo Stock Exchange (first section/second section) 8 25 16 20 18 22 18 29 13 6

Emerging stock markets 75 157 149 100 101 150 139 155 106 42

Others 27 22 4 4 2 3 1 4 2 7

Total 110 204 169 124 121 175 158 188 121 55

Source: Compiled by SME Agency from public data from each stock market.Notes: 1. The numbers for the emerging stock markets are the total for JASDAQ, TSE Mothers, Hercules, Centrex,

Ambitious, and Q-Board. 2. The numbers for others are the total for Osaka Securities Exchange (first section/second section), Nagoya Stock

Exchange (first section/second section), Fukuoka Stock Exchange, and Sapporo Securities Exchange.

Appended notes

297

Appended note 2-5-4 Investment recovery methods for venture capital firms in the United States (2007 record)

In the United States, M&A is an established investment recovery method that is both more common and involves a larger sum than initial public offerings

Number of companies Average amount ($1 million)

Initial public offering 86 120.1

M&A 305 186.7

Source: NVCA, THOMSON Venture Economics.Note: There are many cases of M&As in which the transaction amount is not disclosed. The average amount is calculated by

dividing the total transaction amount of disclosed M&As by the number of companies.

Appended note 2-5-5 Industry and regional distribution of businesses targeted for venture capital investment (2008)

IT related and biotechnology fields have a high percentage in investment targets; By region, Tokyo accounts for more than 40% of investments in terms of number of companies and amount invested

Distribution of sectors in new investment targets for venture capital firms and investment business associations

Number of companies Amount invested

Telecommunications 48 ¥2.663 billion

Computer related 160 ¥7.375 billion

Internet related 165 ¥7.317 billion

Semiconductor/other electronics 115 ¥5.503 billion

Biotechnology 98 ¥5.479 billion

Medical/health care 77 ¥4.137 billion

Agriculture/forestry/fishery 22 ¥845 million

Construction 19 ¥718 million

Industrial/energy related 71 ¥3.886 billion

Manufacturing 151 ¥7.904 billion

Transport 4 ¥260 million

Public utilities 2 ¥50 million

Business services 113 ¥5.11 billion

Consumer related 180 ¥9.660 billion

Finance/insurance/real estate 71 ¥5.138 billion

Other 4 ¥143 million

Other than direct investment to venture businesses 31 ¥1.175 billion

Total 1,335 ¥67.873 billion

Distribution of regions in new investment targets for venture capital firms and investment business partnerships

Number of companies Amount invested

Total for Japan 1,443 ¥117.539 billion

Hokkaido 23 ¥997 million

Tohoku 27 ¥1.542 billion

Kanto (excluding Tokyo) 106 ¥5.982 billion

Tokyo 715 ¥51.698 billion

Chubu 135 ¥4.397 billion

Kinki (excluding Osaka) 75 ¥3.849 billion

Osaka 137 ¥6.396 billion

Chugoku 13 ¥376 million

Shikoku 20 ¥589 million

Kyushu/Okinawa 76 ¥3.431 billion

Overseas total 135 ¥33.680 billion

Total for Asia/Pacific 73 ¥19.613 billion

Total for Europe 6 ¥678 million

Total for North America 54 ¥12.406 billion

Total for other regions 2 ¥117 million

Total 1,578 ¥151.221 billion


298

46.1 46.2 46.6

19.1

42.740.9

52.8

30.9 31.9

42.7

27.9 28.8

21.3

9.5 9.6

29.2

4.06.8

0

10

20

30

40

50

60

Desiring venture capital investment Not desiring venture capital investment Total

Expansion of business due to specialization Sustaining the present business scale Expansion of business due to cooperatives/partnerships with other companies

Expansion of business due to diversification Expansion of business through M&A Intent or plans to list on a stock market

(%)

Appended note 2-5-6 Preference for receiving investment from venture capital firms and important management polices (growth, expansion, and stability phase SMEs)

Only over 40% of SMEs in the growth, expansion, and stability phases that hope for venture capital investment intend to or have plans to list on a stock market

Source: Tokyo Shoko Research Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Note: Due to multiple responses, the total exceeds 100.

78.6

23.417.9

21.716.8

14.28.7

5.2 5.82.0

40.2

12.1 12.7

5.0

32.2 31.0

16.4

6.8

13.310.8

0

10

20

30

40

50

60

70

80

90Positive evaluation Needs improvement

(%)

Lend

ing

base

d on

ass

essm

ent o

f fut

ure

bus

ines

s pot

entia

l

Lend

ing

base

d on

pos

itive

eva

luat

ion o

f

bus

ines

s per

form

ance

Supp

ort f

or in

itial

pub

lic o

fferin

g

The

cred

itwor

thin

ess

gain

ed fr

om h

avin

g

tran

sact

ions w

ith

the

vent

ure

capi

tal f

irmIn

trodu

ction

to su

pplie

rs,

cus

tom

ers,

and

bus

ines

s par

tner

s

Prom

pt le

ndin

g

whe

n fu

nds a

re n

eces

sary

Lend

ing

for

larg

e sc

ale in

vest

men

t

Supp

ort f

or d

rafti

ng

man

agem

ent p

olicy

/bus

ines

s plan

sSm

ooth

pro

vision

of

fund

s thr

ough

lend

ing

Supp

ort f

or M

&A

Appended note 2-5-7 SMEs’ positive evaluations regarding transactions with venture capital firms and aspects to improve on

For “investment based on assessment of future business potential,” a substantially higher percentage of SMEs gave positive evaluations than those who answered that they would like to seek improvement

Source: Tokyo Shoko Research, Ltd., Survey of Conditions Relating to Corporate Fund Procurement (November 2008).Notes: 1. Data for SMEs that answered that they receive investment from venture capital firms. 2. Due to multiple responses, the total exceeds 100.

Appended notes

299

Appended note 3-1-1 Trends in number of working hours for permanent and non-permanent employees by enterprise scale (by manufacturing and non-manufacturing)

The differences between working hours in manufacturing and non-manufacturing are becoming greater




3. The number of working hours is the sum of scheduled hours and overtime hours. 4. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprises (99 or less


188.1176.4 176.7 178.7 177.5

152.3153.2

155.6

182.0175.4139.2

173.6 173.7 174.5

126.3 112.6 106.9112.2

111.6

200.6186.6 184.8 185.8 188.0

144.6 132.3 132.6 137.9141.6

197.3185.6 180.9 182.4 182.5

133.2 116.5 111.3107.4

104.3

0

50

100

150

200

250

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07(Year)

(Hours/month)

Large enterprises (manufacturing, permanent employees)

Large enterprises (manufacturing, non-permanent employees)

Large enterprises (non-manufacturing, permanent employees)

Large enterprises (non-manufacturing, non-permanent employees)

SMEs (manufacturing, permanent employees)

SMEs (manufacturing, non-permanent employees)

SMEs (non-manufacturing, permanent employees)

SMEs (non-manufacturing, non-permanent employees)

143.0

300

Appended note 3-1-2 Trends in wages for permanent and non-permanent employees by enterprise scale (by manufacturing and non-manufacturing)

The differences in wages in manufacturing and non-manufacturing are becoming greater




3. The amount of wages is the “fixed amount of total cash earnings paid.” It refers to the amount of wages paid in the month of June each year.

4. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprises (99 or less regular employees for the wholesales, service, and retail industries, and eating and drinking establishments). Large enterprises are defined as those that are classed otherwise.

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07









31.834.8

37.639.8 40.5

13.1 13.214.3

17.2 18.6

30.9

34.2 35.537.9 37.5

10.1 10.8

10.3

12.6 12.8

23.426.7

28.1 29.1 29.4

9.8 10.8

11.413.0 13.8

25.1

28.6 28.9 29.8 30.0

11.0 11.3

11.0 11.8 11.5

0

5

10

15

20

25

30

35

40

45

(Year)

(¥10,000/month)

Appended notes

301

Appended note 3-1-3 Trends in wages per hour of work for permanent and non-permanent employees by enterprise scale (by manufacturing and non-manufacturing)

The growth for large enterprises (manufacturing, permanent employees) is large




3. The amount of wages is the “fixed amount of total cash earnings paid.” It refers to the amount of wages paid in the month of June each year.

4. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprises (99 or less regular employees for the wholesales, service, and retail industries, and eating and drinking establishments). Large enterprises are defined as those that are classed otherwise.









0

500

1,000

1,500

2,000

2,500(Yen/hour)

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07(Year)

1,690

1,9762,127

2,227 2,284

862

946

9991,122 1,198

1,696 1,9492,046

2,180 2,149

804

958

965

1,122 1,1471,167

1,4301,522 1,568 1,562

679

813 863

944 974

1,274

1,5421,598 1,635 1,645

829

966987 1,098 1,107

302

Appended note 3-1-4 Factors behind the changes in labor share (change from previous term)

Since 1995 the factors behind the changes in labor share have differed between large enterprises and SMEs

Source: Recompiled from MOF, Financial Statements Statistics of Corporations by Industry.Notes: 1. Labor share = labor costs / gross value added (operating profit + labor cost + rent receivable from personal property

and real property + tax and dues + depreciation cost + special depreciation allowance) × 100. 2. Statistics based only on non-primary industries. 3. SMEs are defined as enterprises with 300 or less employees (100 persons or less in the wholesale and service

industries, and 50 persons or less in retail industry, and eating and drinking establishments) and those with a capital of ¥300 million or less (¥100 million or less for the wholesale industry, and ¥50 million or less in the retail industry, eating and drinking establishments, and the service industry). Large enterprises are defined as those that are classed otherwise.

4. The factors behind the changes in labor share have been calculated by using the following method: WG: labor costs, V: gross value added, LN: number of employees, WL: labor cost per employee (WG/LN), T: sales, VR: ratio of gross value added (V/T). From WG/V = (WL x LN) / (VR x T), i (WG/V) 6 (WG/V) x (iWL/WL) <labor cost per employee factor> + (WG/V) x (iLN/LN) <number of employees factor> - (WG/V) x (iVR/VR) <ratio of value added factor> - (WG/V) x (iT/T) <sales factor>

5. The change from previous term for 1985 based on the difference from 1983.

-25

-20

-15

-10

-5

0

5

10

15

20

-25

-20

-15

-10

-5

0

5

10

15

20

85 90 95 00 05 07 85 90 95 00 05 07(Fiscal year) (Fiscal year)

Labor cost per employee Number of employees Ratio of value added Sales

[1] Large enterprises [2] SMEs(Change from previous term)

(Change from previous term)

Change from previous term

Appended notes

303

Appended note 3-1-5 Reasons for wanting to change jobs by enterprise scale (2007)

Large enterprise (permanent employee)

SME (permanent employee)

Large enterprise (non-permanent employee)

SME (non-permanent employee)

First The time and physical burden is great (29.6%)

Low income (35.3%)

Low income (29.9%)

Low income (34.8%)

Second Low income (24.1%)




Third Other (13.0%)

Poor business performance and uncertain future (14.7%)



Fourth Want to make use of knowledge and skills (11.4%)

Want to make use of knowledge and skills (9.0%)



Fifth Poor business performance and uncertain future (10.5%)

Other (8.8%)

Other (11.7%)

Other (9.0%)

Sixth Want to have more spare time (5.5%)

Want to have more spare time (4.3%)



Seventh To plan for retirement age or termination of contract (2.4%)


To plan for retirement age or termination of contract (2.8%)

Family circumstances (2.6%)

Eighth Because it is a temporary job (1.7%)


Wanted to have more spare time (2.1%)

Want to have more spare time (1.9%)

Ninth Family circumstances (1.7%)






corporate bodies”). 4. Enterprises with 299 or less employees (99 or less employees for those in the wholesale and service industries, and 49

or less employees for those in the retail industry, and eating and drinking establishments) are classed as SMEs, and those with 300 or more employees (100 or more employees for those in the wholesale and service industries, and 50 or more employees for those in the retail industry, and eating and drinking establishments) are classed as large enterprises.

5. Statistics based only on those who answered “want to change jobs.” 6. Due to there being some “unidentified reasons,” the total does not correspond to 100.

Appended note 3-1-6 Future prospects regarding insufficient personnel in SMEs by recipients of products and services

The sense of insufficient personnel is comparatively strong in enterprises that provide products and services for consumers



5.75.7

3.63.6

2.52.5

23.823.8

19.719.7

17.417.4

54.354.3

60.360.3

55.655.6

14.514.5

13.613.6

20.020.0

1.7

2.82.8

4.54.5

0% 100%

Establishments

Similar degree to both establishments

and consumers

Consumers

Considerably insufficient Somewhat insufficient Can not say either way Slight surplus Considerable surplus

304

Appended note 3-1-7 Industry type of previous job where SME employees have changed jobs within the past five years (by permanent employees and non-permanent employees)

[1] Current permanent employees (Unit: %)

Industry type of previous occupation





Indu

stry

type

of

curr

ent o

ccup

atio

n Information and communications 2.7 9.9 38.6 11.9 3.5 1.1 15.8 16.5

Eating and drinking places, accommodations 3.6 7.6 0.8 12.6 37.0 2.5 11.6 24.2

Medical, healthcare, and welfare 1.5 8.6 1.1 13.2 5.3 46.4 6.5 17.4

Services (n.e.c.) 7.6 14.7 4.0 17.2 5.8 2.5 25.6 22.5

[2] Current non-permanent employee (Unit: %)

Industry type of previous occupation





Indu

stry

type

of

curr

ent o

ccup

atio

n Information and communications 2.5 11.1 19.1 18.1 5.8 3.1 14.1 26.2

Eating and drinking places, accommodations 2.5 9.9 1.1 22.7 29.5 3.9 10.6 19.8

Medical, healthcare, and welfare 1.4 9.2 1.3 17.4 5.5 36.9 7.3 21.1

Services (n.e.c.) 4.9 15.9 1.8 17.8 8.0 3.9 21.6 26.2

Source: Recompiled from MIC, 2007 Employment Status Survey.Notes: 1. Employees refers to “employees at companies and other organizations excluding executives” in the above survey. 2. Permanent employees refer to “regular staff and employees” in the above survey. 3. Non-permanent employees refer to “employees at companies and other organizations excluding executives” other

than “permanent employees.” 4. Enterprises with 299 or less employees (99 or less employees for those in the wholesale and service industries, and

49 or less employees for those in the retail industry, and eating and drinking establishments) are classed as SMEs. 5. Statistics based only on non-primary industries (excluding “government and other public organizations” and “other

corporate bodies”). 6. Statistics based only on “employees at companies and other organizations excluding executives” for previous jobs

in the industries of “construction,” “manufacturing,” “information and communications,” “wholesale and retail trade,” “eating and drinking places, accommodations,” “medical, healthcare, and welfare,” and “services (n.e.c.)” (excluding “government and other public organizations”).

7. Statistics based only on “employees at companies and other organizations excluding executives” from SMEs who have experienced changing jobs within the past five years.

Appended notes

305

Appended note 3-3-1 Wage curve of permanent employees

Source: Recompiled from MHLW, FY2007 Basic Survey on Wage Structure.Note: 1. Permanent employees refers to those who are permanent employees whose type of employment is regular, and

whose type of work is ordinary. 2. Monthly contractual cash earnings refers to the amount that was paid for June in each year. 3. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprises (99 or less


22.5

27.2

31.8

42.8

45.3 46.1

44.2

31.3

17.3

25.9

20.0

23.9

27.530.5 32.0 32.0 31.7

30.7

26.021.4

15.617.4

20.122.6

24.5 24.9 24.6 23.5 22.6

18.6

15.2

40.235.2

30.0

18.6

37.6

19.7

23.2

28.1

33.0 36.939.5

40.6 41.4

0

5

10

15

20

25

30

35

40

45

50

18 to 19 years old

20 to 24 years old

25 to 29 years old

30 to 34 years old

35 to 39 years old

40 to 44 years old

45 to 49 years old

50 to 54 years old

55 to 59 years old

60 to 64 years old

65 years or above

Mean value of large enterprises Mean value of SMEs Lowest quartile of SMEs Third lowest quartile of SMEs

(¥10,000)

Appended note 3-3-2 Wage curve of permanent employees according to whether they belonged to the manufacturing industry or a non-manufacturing industry

Source: Recompiled from MHLW, FY2007 Basic Survey on Wage Structure.Notes: 1. Permanent employees refers to those who are permanent employees whose type of employment is regular, and

whose type of work is ordinary. 2. Monthly contractual cash earnings refers to the amount that was paid for June in each year. 3. SMEs are defined as enterprises that have 299 or less regular employees within the overall enterprises (99 or less


(¥10,000) (¥10,000)

24.2

45.149.1

49.3

48.1

33.9

17.7

20.824.1

27.330.1 32.0 32.3 31.7 30.8

25.9

16.017.9

20.422.3

24.1 24.4 23.4 22.0 21.8

18.016.0

40.5

29.5

20.0

28.2

32.6

39.5

22.822.0

20.2

24.5

28.8

33.8 35.939.1

41.0 41.236.1

0

5

10

15

20

25

30

35

40

45

50

Mean value of large enterprises Mean value of SMEs Lowest quartile of SMEs Third lowest quartile of SMEs

22.0

26.7

31.1

41.443.8 44.5

41.8

31.2

16.819.7

23.8

27.630.7

32.0 31.9 31.830.6

21.2

15.017.2

20.022.8

24.7 25.0 25.0 24.323.0

19.0

15.0

35.0

17.6

36.8

26.026.019.2

22.7

28.1

33.1

37.4 39.9 40.4 41.540.1

30.0

0

5

10

15

20

25

30

35

40

45

50

18 to

19

year

s old

20 to

24

year

s old

25 to

29

year

s old

30 to

34

year

s old

35 to

39

year

s old

40 to

44

year

s old

45 to

49

year

s old

50 to

54

year

s old

55 to

59

year

s old

60 to

64

year

s old

65 ye

ars o

r abo

ve

18 to

19

year

s old

20 to

24

year

s old

25 to

29

year

s old

30 to

34

year

s old

35 to

39

year

s old

40 to

44

year

s old

45 to

49

year

s old

50 to

54

year

s old

55 to

59

year

s old

60 to

64

year

s old

65 ye

ars o

r abo

ve


306

Appended note 3-4-1 Satisfaction of permanent employees towards the fact that their job is suitable for them

Even for the employees that work in SMEs, the satisfaction towards the fact that there is a job suitable for them is not low


Notes: 1. Statistics based only on permanent employees. 2. Excludes “not sure.”

0% 100%

Large enterprises

SMEs

Fully satisfied Not very satisfiedVery satisfied Neither Barely satisfied

7.37.3

6.56.5

42.342.3

42.842.8

30.730.7

31.031.0

14.014.0

11.611.6

5.75.7

8.18.1

Appended notes

307

Appended note 3-5-1 The gap between enterprises and employees regarding effective measures for allowing women to continue working as permanent employees while raising children

33.9

46.7 47.5

42.6

38.4 38.4

34.6

31.428.7

46.8

37.7

26.0 26.9

14.7

30.6

25.4

19.6

32.1

36.0

40.042.1

38.1

19.7

33.1

30.1

21.9

0

5

10

15

20

25

30

35

40

45

50

(%)Large enterprises SMEs

Pers

onne

l sys

tem

s bas

ed o

n th

e ev

aluat

ion

of p

erfo

rman

ce, r

athe

r tha

n th

e len

gth

of w

orkin

g ho

urs o

r whe

ther

one

has

obt

ained

a le

ave

or n

ot

Build

ing

a sy

stem

that

pro

mot

es

the

empl

oym

ent o

f wom

en

Wag

e sy

stem

s bas

ed o

n th

e ev

aluat

ion

of p

erfo

rman

ce, r

athe

r tha

n th

e len

gth

of w

orkin

g ho

urs o

r whe

ther

one

has

obt

ained

a le

ave

or n

ot

Child

car

e

leav

e sy

stem

Re-e

mpl

oym

ent o

f peo

ple

that

retir

ed in

the

occa

sion

of c

hild

birth

Redu

ction

of w

orkin

g ho

urs

Redu

ction

of o

verti

me

work

and

holi

day w

ork

Perm

ission

to le

ave

early

or b

e lat

e to

wor

k fo

r sen

ding

and

pick

ing

up c

hild

ren

Flexib

ility i

n wo

rkin

g ho

urs a

nd fl

extim

eIn

stall

ation

of t

elewo

rkin

g

and

sate

llite

offic

es

Adju

stm

ents

in th

e am

ount

, plac

emen

t

and

divi

sion

of w

ork

Appr

oval

of b

ringi

ng c

hild

ren

into

the

offic

e

Mea

sure

s to

redu

ce b

urde

ns o

f

divi

sions

with

peo

ple

that

take

chi

ld c

are

leave


Notes: 1. The numbers show the difference between the percentage of what employees believe to be effective, and the percentage of what enterprises believe to be effective.

2. Excludes “no responses.” 3. Statistics based only on female permanent employees of 54 years or below, who have children who are in elementary

school or below.

Appended note 4 Outline of actual survey

Survey name Target industry type Number of surveys List of names used Response

rate

Survey on Personnel Management

A Agriculture, Forestry B Fisheries, C Mining, stone quarrying, G Electricity, gas, heat supply and water, Postal services within H, J Finance and insurance, Academia and research within L, Q Compound services, S Government (n.e.c.) and T All industries excluding those unable to be classified from Japan Standard Industrial Classification.

15,000 Tokyo Shoko Research Database 29.7%

Note: Samples have been selected at random according to employee size.

308

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Supplementary statistical data

Contents

Table 1 Number of business establishments and enterprises by industry and size (private) ............... 312Table 2 Number of enterprises and number of regular employees/workers by prefecture

(private, non-primary industry, 2006) ........................................................................................ 315Table 3 Number of workers by industry and size (private) .................................................................... 318Table 4 Trends in entry and exit rates (non-primary industries) ............................................................ 322Table 5 Trends in entry and exit rates by industry

(based on number of business establishments, annual average) ............................................ 325Table 6 Trends in entry and exit rates based on number of business

establishments with employees ................................................................................................ 325Table 7 Trends in number of incorporation registrations and company entry and exit rates................ 326Table 8 Number of business establishments and workers and value of shipments in manufacturing . 327Table 9 Capital investment and value added in manufacturing ............................................................. 328Table 10 Number of business establishments and workers and value of sales in wholesaling .............. 329Table 11 Number of business establishments and workers and value of sales in retailing .................... 330Table 12 State of corporate bankruptcies................................................................................................ 331Table 13 Outstanding lending to SMEs by type of financial institution ................................................... 332Table 14 Sales and operating costs of SMEs (surveyed industries) ....................................................... 333Table 15 State of SME capital (balance sheet) ........................................................................................ 334Table 16 Financial status, profit status and key financial indices of corporate enterprises

(median values) .......................................................................................................................... 335Table 17 Financial status, profit status and key financial indices of small enterprises

(median values) .......................................................................................................................... 337Table 18 Business conditions DI by prefecture ....................................................................................... 339

312

Table 1 Number of business establishments and enterprises by industry and size (private)(1) Business establishments

Small and medium business establishments Large business establishments Total

(Of which number of establishments

with only temporary employment service

or subcontract vendors)

Of which small business establishments

Industry Year No. % of total No. % of total No. % of total No. % of total

Mining2001 3,760 99.9 3,285 87.3 4 0.1 3,764 100.0 (7)

2004 3,284 99.9 2,920 88.8 3 0.1 3,287 100.0 (12)

2006 3,018 99.9 2,695 89.2 4 0.1 3,022 100.0 (9)

Construction2001 606,656 100.0 564,188 93.0 287 0.0 606,943 100.0 (96)

2004 564,100 100.0 528,027 93.6 252 0.0 564,352 100.0 (113)

2006 548,654 100.0 515,376 93.9 207 0.0 548,861 100.0 (93)

Manufacturing2001 639,869 99.4 549,397 85.4 3,776 0.6 643,645 100.0 (198)

2004 572,965 99.4 489,562 84.9 3,447 0.6 576,412 100.0 (245)

2006 544,629 99.4 461,061 84.1 3,530 0.6 548,159 100.0 (208)


2001 3,389 97.7 1,802 51.9 81 2.3 3,470 100.0 (23)

2004 2,984 97.1 1,595 51.9 89 2.9 3,073 100.0 (24)

2006 2,962 97.1 1,602 52.5 87 2.9 3,049 100.0 (32)


2001 57,257 96.4 34,105 57.4 2,113 3.6 59,370 100.0 (130)

2004 52,397 96.2 30,282 55.6 2,065 3.8 54,462 100.0 (151)

2006 56,925 96.0 32,823 55.3 2,391 4.0 59,316 100.0 (155)

Transport2001 137,142 99.6 99,975 72.6 501 0.4 137,643 100.0 (261)

2004 129,544 99.6 94,099 72.4 512 0.4 130,056 100.0 (392)

2006 129,125 99.6 92,755 71.6 502 0.4 129,627 100.0 (361)

Wholesaling/retailing2001 1,783,800 98.9 1,258,898 69.8 20,629 1.1 1,804,429 100.0 (1,410)

2004 1,607,384 98.8 1,116,545 68.6 19,059 1.2 1,626,443 100.0 (2,069)

2006 1,581,012 98.7 1,087,866 67.9 20,536 1.3 1,601,548 100.0 (1,684)

Wholesale trade2001 400,302 99.1 216,998 53.7 3,496 0.9 403,798 100.0 (358)

2004 383,718 99.2 210,909 54.5 3,018 0.8 386,736 100.0 (384)

2006 364,069 99.2 199,545 54.4 2,959 0.8 367,028 100.0 (448)

Retail trade2001 1,383,498 98.8 1,041,900 74.4 17,133 1.2 1,400,631 100.0 (1,052)

2004 1,223,666 98.7 905,636 73.1 16,041 1.3 1,239,707 100.0 (1,685)

2006 1,216,943 98.6 888,321 72.0 17,577 1.4 1,234,520 100.0 (1,236)

Finance and insurance

2001 99,600 99.6 80,632 80.7 369 0.4 99,969 100.0 (124)

2004 85,219 99.6 68,676 80.3 354 0.4 85,573 100.0 (152)

2006 83,637 99.6 67,869 80.8 348 0.4 83,985 100.0 (117)

Real estate2001 326,714 100.0 321,173 98.3 76 0.0 326,790 100.0 (683)

2004 316,395 100.0 311,012 98.3 76 0.0 316,471 100.0 (755)

2006 318,446 100.0 312,847 98.2 91 0.0 318,537 100.0 (619)


2001 862,612 99.4 644,660 74.3 4,819 0.6 867,431 100.0 (1,077)

2004 798,775 99.5 587,268 73.2 3,932 0.5 802,707 100.0 (753)

2006 781,804 99.4 568,788 72.3 4,363 0.6 786,167 100.0 (653)


2001 252,855 97.9 130,989 50.7 5,382 2.1 258,237 100.0 (94)

2004 269,248 97.7 133,277 48.4 6,251 2.3 275,499 100.0 (123)

2006 304,325 97.8 146,107 47.0 6,823 2.2 311,148 100.0 (140)


2001 165,194 99.2 123,026 73.9 1,351 0.8 166,545 100.0 (429)

2004 162,968 99.2 119,878 72.9 1,365 0.8 164,333 100.0 (269)

2006 168,468 99.0 121,637 71.5 1,653 1.0 170,121 100.0 (265)

Compound services2001 33,673 98.6 18,922 55.4 484 1.4 34,157 100.0 (132)

2004 30,143 98.5 16,834 55.0 444 1.5 30,587 100.0 (219)

2006 47,887 97.7 25,825 52.7 1,110 2.3 48,997 100.0 (99)

Services (not otherwise classified)

2001 1,099,133 99.3 857,308 77.5 7,535 0.7 1,106,668 100.0 (1,199)

2004 1,068,961 99.3 834,709 77.5 7,758 0.7 1,076,719 100.0 (2,004)

2006 1,081,199 99.2 839,528 77.0 9,045 0.8 1,090,244 100.0 (1,269)

Non-primary industry total

2001 6,071,654 99.2 4,688,360 76.6 47,407 0.8 6,119,061 100.0 (5,863)

2004 5,664,367 99.2 4,334,684 75.9 45,607 0.8 5,709,974 100.0 (7,281)

2006 5,652,091 99.1 4,276,779 75.0 50,690 0.9 5,702,781 100.0 (5,704)

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan.Notes: 1. Business establishments with 300 or fewer workers (100 or fewer in wholesaling and services, 50 or fewer in

retailing and eating and drinking places) are treated as small and medium business establishments as defined under the revised Small and Medium Enterprise Basic Law.

2. Business establishments with 20 or fewer workers (5 or fewer in wholesaling, retailing, eating and drinking places, and services) are treated as small business establishments.

3. The percentages of the total for small business establishments indicate their proportion of the total number of business establishments.

4. Industries are classified according to the March 2002 revised system of industry classification. The old minor industry groups for 2001 were concatenated with the minor industry groups under the new system of classification.

5. Each figure includes business establishments with only temporary staff and subcontracted workers (total number of workers = 0).


313

(2) Enterprises

SMEsLarge enterprises Total

Of which small enterprisesIndustry Year No. % of total No. % of total No. % of total No. % of total

Mining2001 2,618 99.7 2,276 86.6 9 0.3 2,627 100.0

2004 2,306 99.8 2,027 87.7 5 0.2 2,311 100.0

2006 2,082 99.8 1,844 88.4 4 0.2 2,086 100.0

Construction2001 543,397 99.9 516,405 95.0 363 0.1 543,760 100.0

2004 507,086 99.9 484,828 95.6 319 0.1 507,405 100.0

2006 489,343 99.9 468,400 95.7 302 0.1 489,645 100.0

Manufacturing2001 548,830 99.6 489,306 88.8 2,121 0.4 550,951 100.0

2004 489,115 99.6 433,917 88.4 1,941 0.4 491,056 100.0

2006 455,621 99.6 401,597 87.8 2,002 0.4 457,623 100.0


2001 510 94.8 266 49.4 28 5.2 538 100.0

2004 490 94.6 262 50.6 28 5.4 518 100.0

2006 537 94.7 295 52.0 30 5.3 567 100.0


2001 32,240 96.8 19,486 58.5 1,070 3.2 33,310 100.0

2004 30,815 96.5 18,358 57.5 1,129 3.5 31,944 100.0

2006 33,814 96.5 20,137 57.4 1,238 3.5 35,052 100.0

Transport2001 86,046 99.7 66,999 77.6 281 0.3 86,327 100.0

2004 80,479 99.7 62,345 77.2 262 0.3 80,741 100.0

2006 77,132 99.6 58,833 76.0 271 0.4 77,403 100.0

Wholesaling/retailing2001 1,309,984 99.5 1,092,042 83.0 5,938 0.5 1,315,922 100.0

2004 1,160,117 99.6 958,117 82.2 5,141 0.4 1,165,258 100.0

2006 1,109,630 99.6 919,310 82.5 4,791 0.4 1,114,421 100.0

Wholesale trade2001 255,587 99.1 176,374 68.4 2,394 0.9 257,981 100.0

2004 252,389 99.2 176,360 69.3 2,131 0.8 254,520 100.0

2006 231,755 99.1 161,019 68.9 2,091 0.9 233,846 100.0

Retail trade2001 1,054,397 99.7 915,668 86.6 3,544 0.3 1,057,941 100.0

2004 907,728 99.7 781,757 85.8 3,010 0.3 910,738 100.0

2006 877,875 99.7 758,291 86.1 2,700 0.3 880,575 100.0

Finance and insurance2001 34,281 99.1 33,126 95.8 313 0.9 34,594 100.0

2004 30,192 99.1 29,120 95.6 283 0.9 30,475 100.0

2006 29,985 99.1 28,870 95.4 271 0.9 30,256 100.0

Real estate2001 297,082 100.0 293,782 98.9 94 0.0 297,176 100.0

2004 287,005 100.0 283,704 98.8 91 0.0 287,096 100.0

2006 285,710 100.0 282,344 98.8 102 0.0 285,812 100.0


2001 742,710 99.9 655,641 88.2 914 0.1 743,624 100.0

2004 677,377 99.9 597,980 88.2 883 0.1 678,260 100.0

2006 647,754 99.9 573,277 88.4 860 0.1 648,614 100.0


2001 175,542 99.9 134,995 76.8 261 0.1 175,803 100.0

2004 178,743 99.9 136,098 76.0 249 0.1 178,992 100.0

2006 188,514 99.9 141,982 75.2 238 0.1 188,752 100.0


2001 119,100 99.9 108,115 90.7 122 0.1 119,222 100.0

2004 114,720 99.9 104,167 90.7 123 0.1 114,843 100.0

2006 115,803 99.9 104,890 90.5 131 0.1 115,934 100.0

Compound services2001 3,960 100.0 3,957 99.9 0 0.0 3,960 100.0

2004 3,588 100.0 3,587 100.0 0 0.0 3,588 100.0

2006 3,717 100.0 3,707 99.7 1 0.0 3,718 100.0


2001 793,308 99.8 685,773 86.2 1,917 0.2 795,225 100.0

2004 763,757 99.8 662,353 86.5 1,891 0.2 765,648 100.0

2006 758,077 99.7 657,583 86.5 2,110 0.3 760,187 100.0


2001 4,689,608 99.7 4,102,169 87.2 13,431 0.3 4,703,039 100.0

2004 4,325,790 99.7 3,776,863 87.1 12,345 0.3 4,338,135 100.0

2006 4,197,719 99.7 3,663,069 87.0 12,351 0.3 4,210,070 100.0

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan. Notes: 1. Number of enterprises = Number of companies + Business establishments of sole proprietors (independent

establishments and head offices). 2. Enterprises with 300 or fewer regular employees (100 or fewer in wholesaling and services, and 50 or fewer in

retailing and eating and drinking places) or capital stock of ¥300 million or less (¥100 million or less in wholesaling, and ¥50 million or less in retailing, eating and drinking places, and services) are treated as SMEs as defined under the revised Small and Medium Enterprise Basic Law.

3. Enterprises with 20 or fewer regular employees (5 or fewer in wholesaling, retailing, eating and drinking places, and services) are treated as small enterprises.

4. The percentages of the total for small business enterprises indicate their proportion of the total number of enterprises.


314

(3) Companies


Of which small enterprisesIndustry Year No. % of total No. % of total No. % of total No. % of total

Mining2001 2,136 99.6 1,797 83.8 9 0.4 2,145 100.0

2004 1,909 99.7 1,634 85.4 5 0.3 1,914 100.0

2006 1,739 99.8 1,501 86.1 4 0.2 1,743 100.0

Construction2001 298,977 99.9 272,228 90.9 363 0.1 299,340 100.0

2004 283,465 99.9 261,377 92.1 319 0.1 283,784 100.0

2006 279,721 99.9 258,918 92.5 302 0.1 280,023 100.0

Manufacturing2001 290,555 99.3 231,648 79.1 2,121 0.7 292,676 100.0

2004 267,370 99.3 212,689 79.0 1,941 0.7 269,311 100.0

2006 256,646 99.2 203,066 78.5 2,002 0.8 258,648 100.0


2001 508 94.8 264 49.3 28 5.2 536 100.0

2004 489 94.6 261 50.5 28 5.4 517 100.0

2006 537 94.7 295 52.0 30 5.3 567 100.0


2001 28,771 96.4 16,104 54.0 1,070 3.6 29,841 100.0

2004 28,155 96.1 15,747 53.8 1,129 3.9 29,284 100.0

2006 31,138 96.2 17,510 54.1 1,238 3.8 32,376 100.0

Transport2001 48,096 99.4 29,119 60.2 281 0.6 48,377 100.0

2004 46,215 99.4 28,139 60.5 262 0.6 46,477 100.0

2006 46,234 99.4 27,978 60.2 271 0.6 46,505 100.0

Wholesaling/retailing2001 488,509 99.0 312,181 63.2 5,092 1.0 493,601 100.0

2004 448,986 98.9 284,163 62.6 4,789 1.1 453,775 100.0

2006 437,829 99.0 283,909 64.2 4,583 1.0 442,412 100.0

Wholesale trade2001 187,170 98.7 111,287 58.7 2,391 1.3 189,561 100.0

2004 181,516 98.8 108,452 59.1 2,130 1.2 183,646 100.0

2006 172,966 98.8 104,588 59.7 2,091 1.2 175,057 100.0

Retail trade2001 301,339 99.1 200,894 66.1 2,701 0.9 304,040 100.0

2004 267,470 99.0 175,711 65.0 2,659 1.0 270,129 100.0

2006 264,863 99.1 179,321 67.1 2,492 0.9 267,355 100.0

Finance and insurance2001 16,594 98.1 15,440 91.3 313 1.9 16,907 100.0

2004 16,195 98.3 15,124 91.8 283 1.7 16,478 100.0

2006 17,707 98.5 16,592 92.3 271 1.5 17,978 100.0

Real estate2001 100,057 99.9 96,861 96.7 94 0.1 100,151 100.0

2004 97,309 99.9 94,083 96.6 91 0.1 97,400 100.0

2006 101,332 99.9 98,022 96.6 102 0.1 101,434 100.0


2001 93,581 99.1 47,180 49.9 887 0.9 94,468 100.0

2004 89,892 99.0 45,905 50.6 870 1.0 90,762 100.0

2006 83,549 99.0 43,212 51.2 840 1.0 84,389 100.0


2001 6,069 99.2 3,431 56.1 46 0.8 6,115 100.0

2004 10,066 99.2 4,390 43.3 80 0.8 10,146 100.0

2006 15,028 99.4 5,714 37.8 98 0.6 15,126 100.0


2001 11,048 99.0 4,909 44.0 116 1.0 11,164 100.0

2004 11,642 99.0 5,517 46.9 121 1.0 11,763 100.0

2006 11,958 98.9 5,772 47.7 130 1.1 12,088 100.0

Compound services2001 46 100.0 43 93.5 0 0.0 46 100.0

2004 35 100.0 34 97.1 0 0.0 35 100.0

2006 40 97.6 34 82.9 1 2.4 41 100.0


2001 210,545 99.1 122,829 57.8 1,898 0.9 212,443 100.0

2004 206,466 99.1 122,634 58.9 1,875 0.9 208,341 100.0

2006 209,800 99.0 125,878 59.4 2,089 1.0 211,889 100.0


2001 1,595,492 99.2 1,154,034 71.8 12,318 0.8 1,607,810 100.0

2004 1,508,194 99.2 1,091,697 71.8 11,793 0.8 1,519,987 100.0

2006 1,493,258 99.2 1,088,401 72.3 11,961 0.8 1,505,219 100.0

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan.Notes: 1. Business establishments of sole proprietors are not included. 2. Enterprises with 300 or fewer regular employees (100 or fewer in wholesaling and services, and 50 or fewer in

retailing and eating and drinking places) or capital stock of ¥300 million or less (¥100 million or less in wholesaling, and ¥50 million or less in retailing, eating and drinking places, and services) are treated as SMEs as defined under the revised Small and Medium Enterprise Basic Law.


4. The percentages of the total for small business enterprises indicate their proportion of the total number of enterprises.



315

Table 2 Number of enterprises and number of regular employees/workers by prefecture (private, non-primary industry, 2006)

(1) Number of enterprises


Of which small enterprisesNo. % of total No. % of total No. % of total No. % of total

Hokkaido 166,252 99.8 143,400 86.1 335 0.2 166,587 100.0

Aomori 49,476 99.9 43,840 88.5 70 0.1 49,546 100.0

Iwate 46,501 99.8 41,045 88.1 78 0.2 46,579 100.0

Miyagi 72,742 99.8 63,518 87.1 170 0.2 72,912 100.0

Akita 42,205 99.9 37,568 88.9 46 0.1 42,251 100.0

Yamagata 47,721 99.8 42,506 88.9 74 0.2 47,795 100.0

Fukushima 72,856 99.9 64,902 89.0 78 0.1 72,934 100.0

Ibaraki 91,625 99.9 81,402 88.7 105 0.1 91,730 100.0

Tochigi 70,412 99.9 62,873 89.2 102 0.1 70,514 100.0

Gunma 77,570 99.9 69,495 89.5 105 0.1 77,675 100.0

Saitama 179,649 99.8 159,425 88.6 279 0.2 179,928 100.0

Chiba 131,715 99.8 115,504 87.5 258 0.2 131,973 100.0

Tokyo 498,978 99.0 417,062 82.8 4,797 1.0 503,775 100.0

Kanagawa 197,499 99.7 170,183 85.9 605 0.3 198,104 100.0

Niigata 93,510 99.8 82,859 88.5 164 0.2 93,674 100.0

Toyama 42,761 99.8 37,613 87.8 96 0.2 42,857 100.0

Ishikawa 48,043 99.8 42,540 88.3 120 0.2 48,163 100.0

Fukui 35,606 99.9 31,692 88.9 52 0.1 35,658 100.0

Yamanashi 37,001 99.9 33,475 90.4 47 0.1 37,048 100.0

Nagano 86,078 99.8 77,306 89.6 154 0.2 86,232 100.0

Gifu 84,144 99.9 74,696 88.7 110 0.1 84,254 100.0

Shizuoka 141,675 99.8 125,315 88.3 243 0.2 141,918 100.0

Aichi 239,105 99.7 204,603 85.3 712 0.3 239,817 100.0

Mie 60,717 99.8 53,728 88.4 92 0.2 60,809 100.0

Shiga 38,690 99.9 33,873 87.4 54 0.1 38,744 100.0

Kyoto 94,663 99.8 83,630 88.2 201 0.2 94,864 100.0

Osaka 315,792 99.6 273,165 86.1 1,311 0.4 317,103 100.0

Hyogo 168,926 99.8 147,717 87.3 352 0.2 169,278 100.0

Nara 35,834 99.9 31,662 88.3 36 0.1 35,870 100.0

Wakayama 41,992 99.9 38,170 90.8 39 0.1 42,031 100.0

Tottori 19,306 99.8 16,902 87.4 33 0.2 19,339 100.0

Shimane 27,821 99.9 24,696 88.7 28 0.1 27,849 100.0

Okayama 58,657 99.8 51,185 87.1 111 0.2 58,768 100.0

Hiroshima 96,306 99.8 83,525 86.6 189 0.2 96,495 100.0

Yamaguchi 48,078 99.9 41,937 87.1 71 0.1 48,149 100.0

Tokushima 30,297 99.9 27,290 90.0 26 0.1 30,323 100.0

Kagawa 36,304 99.8 32,039 88.1 77 0.2 36,381 100.0

Ehime 51,394 99.8 45,673 88.7 91 0.2 51,485 100.0

Kochi 30,686 99.9 27,659 90.1 25 0.1 30,711 100.0

Fukuoka 153,169 99.7 131,263 85.5 396 0.3 153,565 100.0

Saga 29,031 99.9 25,382 87.3 37 0.1 29,068 100.0

Nagasaki 50,228 99.9 44,243 88.0 53 0.1 50,281 100.0

Kumamoto 57,237 99.9 50,035 87.3 81 0.1 57,318 100.0

Oita 41,386 99.9 36,257 87.5 58 0.1 41,444 100.0

Miyazaki 41,473 99.9 36,787 88.6 50 0.1 41,523 100.0

Kagoshima 59,982 99.9 53,509 89.1 66 0.1 60,048 100.0

Okinawa 56,626 99.9 49,920 88.0 74 0.1 56,700 100.0

Total 4,197,719 99.7 3,663,069 87.0 12,351 0.3 4,210,070 100.0

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan (2006). Notes: 1. Number of enterprises = Number of companies + Business establishments of sole proprietors (independent

establishments and head offices). 2. Enterprises with 300 or fewer regular employees (100 or fewer in wholesaling and services, 50 or fewer in retailing

and eating and drinking places) or capital stock of ¥300 million or less (¥100 million or less in wholesaling, ¥50 million or less in retailing, eating and drinking places, and services) are treated as SMEs as defined under the revised Small and Medium Enterprise Basic Law.


4. The percentages of the total for small enterprises indicate their proportion of the total number of enterprises. 5. Industries are classified according to the March 2002 revised system of industry classification.

316

(2) Number of regular employees


Of which small enterprisesNo. of regular

employees % of total No. of regular employees % of total No. of regular

employees % of total No. of regular employees % of total

Hokkaido 964,828 83.4 251,788 21.8 191,422 16.6 1,156,250 100.0

Aomori 241,718 88.1 67,642 24.7 32,542 11.9 274,260 100.0

Iwate 239,653 87.1 66,423 24.1 35,635 12.9 275,288 100.0

Miyagi 390,710 79.6 102,597 20.9 100,121 20.4 490,831 100.0

Akita 201,334 90.9 59,553 26.9 20,262 9.1 221,596 100.0

Yamagata 226,956 84.4 65,912 24.5 41,843 15.6 268,799 100.0

Fukushima 356,360 82.7 107,181 24.9 74,608 17.3 430,968 100.0

Ibaraki 444,269 83.5 139,148 26.2 87,530 16.5 531,799 100.0

Tochigi 321,439 81.0 103,898 26.2 75,183 19.0 396,622 100.0

Gunma 369,296 77.4 111,964 23.5 107,737 22.6 477,033 100.0

Saitama 934,401 78.0 272,047 22.7 263,118 22.0 1,197,519 100.0

Chiba 660,575 68.4 189,958 19.7 305,040 31.6 965,615 100.0

Tokyo 4,051,779 41.9 747,752 7.7 5,629,621 58.1 9,681,400 100.0

Kanagawa 1,175,276 71.8 297,288 18.2 461,832 28.2 1,637,108 100.0

Niigata 492,698 84.1 144,481 24.7 93,258 15.9 585,956 100.0

Toyama 239,814 78.4 68,664 22.5 65,922 21.6 305,736 100.0

Ishikawa 247,487 82.7 72,074 24.1 51,683 17.3 299,170 100.0

Fukui 180,388 87.1 56,330 27.2 26,760 12.9 207,148 100.0

Yamanashi 154,141 87.9 51,697 29.5 21,205 12.1 175,346 100.0

Nagano 415,824 82.3 120,098 23.8 89,465 17.7 505,289 100.0

Gifu 443,151 85.7 129,008 24.9 74,068 14.3 517,219 100.0

Shizuoka 766,932 80.4 217,107 22.8 186,762 19.6 953,694 100.0

Aichi 1,613,872 66.7 386,840 16.0 806,418 33.3 2,420,290 100.0

Mie 303,499 84.9 89,282 25.0 53,984 15.1 357,483 100.0

Shiga 212,015 80.7 55,732 21.2 50,737 19.3 262,752 100.0

Kyoto 479,778 69.1 129,590 18.7 214,134 30.9 693,912 100.0

Osaka 2,101,314 54.0 480,560 12.4 1,788,903 46.0 3,890,217 100.0

Hyogo 908,189 78.9 245,986 21.4 242,536 21.1 1,150,725 100.0

Nara 169,322 91.7 51,880 28.1 15,234 8.3 184,556 100.0

Wakayama 150,899 89.3 54,386 32.2 18,126 10.7 169,025 100.0

Tottori 103,580 92.6 29,766 26.6 8,223 7.4 111,803 100.0

Shimane 131,008 90.7 42,163 29.2 13,410 9.3 144,418 100.0

Okayama 338,142 83.0 89,864 22.0 69,425 17.0 407,567 100.0

Hiroshima 584,070 76.1 148,347 19.3 183,862 23.9 767,932 100.0

Yamaguchi 257,084 83.4 73,379 23.8 51,267 16.6 308,351 100.0

Tokushima 125,864 89.7 41,280 29.4 14,461 10.3 140,325 100.0

Kagawa 187,234 75.5 52,702 21.3 60,639 24.5 247,873 100.0

Ehime 253,546 81.1 75,993 24.3 59,206 18.9 312,752 100.0

Kochi 126,120 89.9 40,282 28.7 14,212 10.1 140,332 100.0

Fukuoka 920,790 72.1 226,304 17.7 355,691 27.9 1,276,481 100.0

Saga 144,087 90.1 42,986 26.9 15,744 9.9 159,831 100.0

Nagasaki 233,183 90.2 70,593 27.3 25,247 9.8 258,430 100.0

Kumamoto 284,857 88.7 83,461 26.0 36,331 11.3 321,188 100.0

Oita 204,554 81.3 59,911 23.8 47,169 18.7 251,723 100.0

Miyazaki 184,320 89.0 59,242 28.6 22,790 11.0 207,110 100.0

Kagoshima 266,162 86.0 82,320 26.6 43,391 14.0 309,553 100.0

Okinawa 244,500 87.1 72,123 25.7 36,366 12.9 280,866 100.0

Total 24,047,018 66.2 6,227,582 17.1 12,283,123 33.8 36,330,141 100.0

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan (2006).Notes: 1. The figures shown indicate the total number of employees of companies and sole proprietors. 2. Companies with 300 or fewer regular employees (100 or fewer in wholesaling and services, 50 or fewer in retailing

and eating and drinking places) or with capital stock of ¥300 million or less (¥100 million in wholesaling, ¥50 million or less in retailing, eating and drinking places, and services) are treated as SMEs as defined under the revised Small and Medium Enterprise Basic Law.

3. Companies with 20 or fewer regular employees (5 or fewer in wholesaling, retailing and services) are treated as small enterprises.

4. The percentages of the total small enterprises indicate the proportion of regular employees accounted for by small enterprises.

5. Industries are classified according to the March 2002 revised system of industry classification.


317

(3) Number of regular employees and workers



company employees + total no. of workers of sole proprietors

% of total

No. of regular company

employees + total no. of workers of sole proprietors

% of totalNo. of regular

company employees

% of total



% of total

Hokkaido 1,095,667 85.1 359,538 27.9 191,788 14.9 1,287,455 100.0

Aomori 292,741 90.0 110,620 34.0 32,600 10.0 325,341 100.0

Iwate 286,944 89.0 106,398 33.0 35,639 11.0 322,583 100.0

Miyagi 459,752 82.1 159,155 28.4 100,274 17.9 560,026 100.0

Akita 244,202 92.3 96,527 36.5 20,379 7.7 264,581 100.0

Yamagata 274,831 86.8 106,692 33.7 41,844 13.2 316,675 100.0

Fukushima 422,686 85.0 164,203 33.0 74,782 15.0 497,468 100.0

Ibaraki 535,311 85.9 213,891 34.3 87,641 14.1 622,952 100.0

Tochigi 382,125 83.6 155,731 34.1 75,186 16.4 457,311 100.0

Gunma 440,304 80.3 172,562 31.5 107,741 19.7 548,045 100.0

Saitama 1,088,174 80.5 398,914 29.5 263,254 19.5 1,351,428 100.0

Chiba 776,025 71.7 281,613 26.0 305,670 28.3 1,081,695 100.0

Tokyo 4,385,219 43.8 1,009,648 10.1 5,630,928 56.2 10,016,147 100.0

Kanagawa 1,324,938 74.1 411,782 23.0 462,039 25.9 1,786,977 100.0

Niigata 578,969 86.1 218,759 32.5 93,301 13.9 672,270 100.0

Toyama 281,061 80.9 102,602 29.5 66,216 19.1 347,277 100.0

Ishikawa 294,531 85.0 110,749 32.0 51,819 15.0 346,350 100.0

Fukui 214,910 88.9 84,994 35.2 26,761 11.1 241,671 100.0

Yamanashi 192,601 90.1 83,690 39.1 21,206 9.9 213,807 100.0

Nagano 493,403 84.6 187,113 32.1 89,723 15.4 583,126 100.0

Gifu 525,241 87.6 197,061 32.9 74,399 12.4 599,640 100.0

Shizuoka 893,498 82.7 322,250 29.8 186,937 17.3 1,080,435 100.0

Aichi 1,816,273 69.2 543,796 20.7 806,674 30.8 2,622,947 100.0

Mie 366,422 87.1 139,801 33.2 54,042 12.9 420,464 100.0

Shiga 252,648 83.2 87,715 28.9 50,870 16.8 303,518 100.0

Kyoto 577,473 72.9 207,122 26.2 214,315 27.1 791,788 100.0

Osaka 2,399,424 57.3 716,404 17.1 1,789,639 42.7 4,189,063 100.0

Hyogo 1,080,105 81.6 379,339 28.7 243,004 18.4 1,323,109 100.0

Nara 213,558 93.3 86,234 37.7 15,428 6.7 228,986 100.0

Wakayama 201,281 91.7 95,472 43.5 18,132 8.3 219,413 100.0

Tottori 121,240 93.6 44,094 34.0 8,277 6.4 129,517 100.0

Shimane 157,713 92.2 64,301 37.6 13,411 7.8 171,124 100.0

Okayama 388,988 84.8 131,727 28.7 69,478 15.2 458,466 100.0

Hiroshima 663,302 78.3 212,939 25.1 183,868 21.7 847,170 100.0

Yamaguchi 302,619 85.5 109,405 30.9 51,270 14.5 353,889 100.0

Tokushima 155,833 91.5 67,144 39.4 14,562 8.5 170,395 100.0

Kagawa 218,689 78.3 79,157 28.3 60,640 21.7 279,329 100.0

Ehime 303,277 83.6 117,387 32.4 59,346 16.4 362,623 100.0

Kochi 159,025 91.8 68,001 39.2 14,283 8.2 173,308 100.0

Fukuoka 1,072,904 75.1 343,444 24.0 356,561 24.9 1,429,465 100.0

Saga 175,446 91.8 67,682 35.4 15,761 8.2 191,207 100.0

Nagasaki 286,573 91.9 113,670 36.4 25,366 8.1 311,939 100.0

Kumamoto 339,709 90.3 127,853 34.0 36,648 9.7 376,357 100.0

Oita 243,401 83.8 91,911 31.6 47,175 16.2 290,576 100.0

Miyazaki 225,581 90.8 93,343 37.6 22,794 9.2 248,375 100.0

Kagoshima 325,370 88.2 132,099 35.8 43,391 11.8 368,761 100.0

Okinawa 305,563 89.4 118,575 34.7 36,368 10.6 341,931 100.0

Total 27,835,550 69.4 9,293,107 23.2 12,291,430 30.6 40,126,980 100.0

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan (2006). Notes: 1. The figures shown indicate the combined sum of regular employees of companies and the total number of workers

of sole proprietors. 2. Companies with 300 or fewer regular employees (100 or fewer in wholesaling and services, 50 or fewer in retailing

and eating and drinking places) or with capital stock of ¥300 million or less (¥100 million in wholesaling, ¥50 million or less in retailing, eating and drinking places, and services) and sole proprietors with 300 or fewer workers (100 or fewer in wholesaling and services, 50 or fewer in retailing) are treated as SMEs.

3. Companies with 20 or fewer regular employees (5 or fewer in wholesaling, retailing and services) and sole proprietors with 20 or fewer workers (5 or fewer in wholesaling, retailing and services) are treated as small enterprises.

4. The percentages of the total small enterprises indicate the proportion of regular employees of companies and workers of sole proprietors accounted for by small enterprises.


318

Table 3 Number of workers by industry and size (private)(1) Business establishments

Size

ItemIndustry Year

Small and medium business establishments Large business establishments Total

Of which small business establishments

No. of workers % of total No. of workers % of total No. of workers % of total No. of workers % of total

Mining2001 44,262 94.1 25,427 54.0 2,795 5.9 47,057 100.02004 36,101 96.1 21,912 58.4 1,448 3.9 37,549 100.02006 31,744 94.8 19,760 59.0 1,753 5.2 33,497 100.0

Construction2001 4,778,737 96.7 3,024,411 61.2 164,874 3.3 4,943,611 100.02004 4,240,384 96.8 2,764,947 63.1 142,029 3.2 4,382,413 100.02006 4,012,030 96.8 2,639,034 63.7 132,007 3.2 4,144,037 100.0

Manufacturing2001 8,137,677 74.3 2,964,485 27.1 2,819,073 25.7 10,956,750 100.02004 7,455,508 75.0 2,629,993 26.5 2,484,941 25.0 9,940,449 100.02006 7,365,782 74.2 2,512,611 25.3 2,555,465 25.8 9,921,247 100.0


2001 148,979 71.1 14,473 6.9 60,414 28.9 209,393 100.02004 126,933 67.2 13,013 6.9 61,981 32.8 188,914 100.02006 120,781 66.8 12,614 7.0 59,959 33.2 180,740 100.0


2001 774,407 54.9 142,895 10.1 636,829 45.1 1,411,236 100.02004 740,757 53.6 129,919 9.4 641,559 46.4 1,382,316 100.02006 813,004 51.1 145,044 9.1 779,101 48.9 1,592,105 100.0

Transport2001 2,650,382 90.7 609,310 20.8 272,756 9.3 2,923,138 100.02004 2,544,003 90.1 578,465 20.5 278,171 9.9 2,822,174 100.02006 2,603,782 90.7 591,920 20.6 266,829 9.3 2,870,611 100.0

Wholesaling/retailing2001 10,587,887 79.7 3,202,982 24.1 2,690,686 20.3 13,278,573 100.02004 9,747,677 79.8 2,845,464 23.3 2,471,142 20.2 12,218,819 100.02006 9,766,305 79.0 2,754,800 22.3 2,600,285 21.0 12,366,590 100.0

Wholesale trade2001 3,559,465 82.6 643,366 14.9 751,982 17.4 4,311,447 100.02004 3,338,697 83.5 624,883 15.6 660,723 16.5 3,999,420 100.02006 3,227,175 83.6 585,777 15.2 633,177 16.4 3,860,352 100.0

Retail trade2001 7,028,422 78.4 2,559,616 28.5 1,938,704 21.6 8,967,126 100.02004 6,408,980 78.0 2,220,581 27.0 1,810,419 22.0 8,219,399 100.02006 6,539,130 76.9 2,169,023 25.5 1,967,108 23.1 8,506,238 100.0

Finance and insurance2001 1,391,465 84.6 548,181 33.3 253,199 15.4 1,644,664 100.02004 1,201,074 83.9 469,052 32.8 230,066 16.1 1,431,140 100.02006 1,176,527 82.4 461,147 32.3 251,921 17.6 1,428,448 100.0

Real estate2001 962,574 96.4 761,033 76.3 35,468 3.6 998,042 100.02004 929,534 96.2 725,871 75.2 36,293 3.8 965,827 100.02006 968,727 95.9 751,234 74.4 41,295 4.1 1,010,022 100.0


2001 4,586,932 89.8 1,573,881 30.8 520,805 10.2 5,107,737 100.02004 4,365,775 90.6 1,427,037 29.6 450,947 9.4 4,816,722 100.02006 4,394,520 90.3 1,358,690 27.9 474,320 9.7 4,868,840 100.0

Medical, health care, and welfare

2001 2,359,179 65.3 361,838 10.0 1,252,297 34.7 3,611,476 100.02004 2,719,112 65.4 368,181 8.9 1,437,124 34.6 4,156,236 100.02006 3,196,264 66.3 403,959 8.4 1,626,170 33.7 4,822,434 100.0


2001 997,008 76.0 222,789 17.0 315,616 24.0 1,312,624 100.02004 1,027,798 75.1 219,074 16.0 339,944 24.9 1,367,742 100.02006 1,102,771 69.4 224,660 14.1 486,600 30.6 1,589,371 100.0

Compound services2001 312,603 77.8 46,864 11.7 89,225 22.2 401,828 100.02004 278,431 78.3 41,212 11.6 77,350 21.7 355,781 100.02006 445,372 63.0 76,754 10.9 261,151 37.0 706,523 100.0


2001 5,972,172 76.2 1,955,353 25.0 1,862,290 23.8 7,834,462 100.02004 5,763,217 74.1 1,880,993 24.2 2,015,881 25.9 7,779,098 100.02006 5,986,477 71.2 1,883,851 22.4 2,425,863 28.8 8,412,340 100.0


2001 43,704,264 79.9 15,453,922 28.3 10,976,327 20.1 54,680,591 100.02004 41,176,304 79.4 14,115,133 27.2 10,668,876 20.6 51,845,180 100.02006 41,984,086 77.8 13,836,078 25.6 11,962,719 22.2 53,946,805 100.0

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan. Notes: 1. Business establishments with 300 or fewer workers (100 or fewer in wholesaling and services, 50 or fewer in

retailing and eating and drinking places) are treated as small and medium business establishments as defined under the revised Small and Medium Enterprise Basic Law.

2. Business establishments with 20 or fewer workers (5 or fewer in wholesaling, retailing, eating and drinking places, and services) are treated as small business establishments.

3. The percentages of the total for small business establishments indicate their proportion of the total number of business establishments.



319

(2) Enterprises (number of regular employees of companies and sole proprietors)

Size

ItemIndustry





Mining 21,559 87.3 10,361 42.0 3,127 12.7 24,686 100.0Construction 2,580,524 86.3 1,511,535 50.6 408,148 13.7 2,988,672 100.0Manufacturing 5,603,145 61.4 1,429,888 15.7 3,520,839 38.6 9,123,984 100.0Electricity, gas, heat supply, and water 27,477 14.4 2,416 1.3 163,291 85.6 190,768 100.0

Information and communications 662,851 46.6 59,106 4.2 759,603 53.4 1,422,454 100.0

Transport 1,820,994 71.2 242,145 9.5 736,342 28.8 2,557,336 100.0Wholesaling/retailing 5,597,778 62.7 1,017,892 11.4 3,324,601 37.3 8,922,379 100.0

Wholesale trade 2,232,594 68.9 273,840 8.5 1,005,868 31.1 3,238,462 100.0Retail trade 3,365,184 59.2 744,052 13.1 2,318,733 40.8 5,683,917 100.0

Finance and insurance 155,016 15.6 55,310 5.6 840,385 84.4 995,401 100.0Real estate 471,241 83.1 226,571 39.9 95,917 16.9 567,158 100.0Eating and drinking places, accommodations 1,994,074 73.1 661,489 24.2 734,819 26.9 2,728,893 100.0

Medical, health care, and welfare 855,582 90.5 262,305 27.7 89,727 9.5 945,309 100.0

Education, learning support 322,985 79.0 69,225 16.9 85,737 21.0 408,722 100.0Compound services 3,068 95.4 2,785 86.6 149 4.6 3,217 100.0Services (not otherwise classified) 3,930,724 72.1 676,554 12.4 1,520,438 27.9 5,451,162 100.0

Non-primary industry total 24,047,018 66.2 6,227,582 17.1 12,283,123 33.8 36,330,141 100.0

Source: Recompiled from MIC, Establishment and Enterprise Census of Japan (2006). Notes: 1. The figures shown indicate the total number of employees of companies and sole proprietors. 2. Enterprises with 300 or fewer regular employees (100 or fewer in wholesaling and services, 50 or fewer in retailing

and eating and drinking places) or with capital stock of ¥300 million or less (¥100 million in wholesaling, ¥50 million or less in retailing, eating and drinking places, and services) are treated as SMEs as defined under the revised Small and Medium Enterprise Basic Law.

3. Enterprises with 20 or fewer regular employees (5 or fewer in wholesaling, retailing and services) are treated as small enterprises.



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(3) Enterprises (number of regular employees of companies and total number of workers of sole proprietors)

Size

Item

Industry


Of which small enterprises

No. of regular company employees + total no. of workers

of sole proprietors% of total



% of totalNo. of regular

company employees

% of total



% of total

Mining 22,062 87.6 10,863 43.1 3,127 12.4 25,189 100.0Construction 2,882,090 87.6 1,808,823 55.0 408,148 12.4 3,290,238 100.0Manufacturing 5,903,494 62.6 1,724,641 18.3 3,520,839 37.4 9,424,333 100.0Electricity, gas, heat supply, and water

27,477 14.4 2,416 1.3 163,291 85.6 190,768 100.0


Transport 1,857,903 71.6 278,598 10.7 736,342 28.4 2,594,245 100.0Wholesaling/retailing 6,608,461 66.5 1,853,781 18.7 3,330,631 33.5 9,939,092 100.0

Wholesale trade 2,322,118 69.8 343,343 10.3 1,006,043 30.2 3,328,161 100.0Retail trade 4,286,343 64.8 1,510,438 22.8 2,324,588 35.2 6,610,931 100.0

Finance and insurance 170,470 16.9 70,764 7.0 840,385 83.1 1,010,855 100.0Real estate 698,796 87.9 453,392 57.1 95,917 12.1 794,713 100.0Eating and drinking places, accommodations 2,820,399 79.3 1,246,866 35.1 735,231 20.7 3,555,630 100.0

Medical, health care, and welfare 1,082,606 92.3 325,155 27.7 90,866 7.7 1,173,472 100.0

Education, learning support 458,300 84.2 171,788 31.6 85,738 15.8 544,038 100.0Compound services 8,246 98.2 7,868 93.7 149 1.8 8,395 100.0Services (not otherwise classified) 4,628,358 75.3 1,275,768 20.7 1,521,163 24.7 6,149,521 100.0


Source: Recompiled from MIC, Establishment and Enterprise Census of Japan (2006). Notes: 1. The figures shown indicate the total number of employees of companies and sole proprietors. 2. Companies with 300 or fewer regular employees (100 or fewer in wholesaling and services, 50 or fewer in retailing

and eating and drinking places) or with capital stock of ¥300 million or less (¥100 million in wholesaling, ¥50 million or less in retailing, eating and drinking places, and services) and sole proprietors with 300 or fewer workers (100 or fewer in wholesaling and services, 50 or fewer in retailing and eating and drinking places) are treated as SMEs.

3. Companies with 20 or fewer regular employees (5 or fewer in wholesaling, retailing, eating and drinking places, and services) and sole proprietors with 20 or fewer workers (5 or fewer in wholesaling, retailing, eating and drinking places, and services) are treated as small enterprises.




321

(4) Companies only (number of regular employees of companies)

Size

ItemIndustry





Mining 20,863 87.0 9,693 40.4 3,127 13.0 23,990 100.0Construction 2,345,645 85.2 1,281,122 46.5 408,148 14.8 2,753,793 100.0Manufacturing 5,315,311 60.2 1,155,972 13.1 3,520,839 39.8 8,836,150 100.0Electricity, gas, heat supply, and water 27,477 14.4 2,416 1.3 163,291 85.6 190,768 100.0


Transport 1,806,526 71.0 229,152 9.0 736,342 29.0 2,542,868 100.0Wholesaling/retailing 4,650,393 58.4 549,505 6.9 3,306,218 41.6 7,956,611 100.0

Wholesale trade 2,150,493 68.1 215,652 6.8 1,005,868 31.9 3,156,361 100.0Retail trade 2,499,900 52.1 333,853 7.0 2,300,350 47.9 4,800,250 100.0

Finance and insurance 147,022 14.9 47,316 4.8 840,385 85.1 987,407 100.0Real estate 432,587 81.9 188,508 35.7 95,917 18.1 528,504 100.0Eating and drinking places, accommodations 1,118,391 60.4 100,519 5.4 733,277 39.6 1,851,668 100.0

Medical, health care, and welfare 245,230 78.9 13,052 4.2 65,557 21.1 310,787 100.0

Education, learning support 213,560 71.4 11,302 3.8 85,600 28.6 299,160 100.0Compound services 284 65.6 44 10.2 149 34.4 433 100.0Services (not otherwise classified) 3,350,516 68.8 264,332 5.4 1,515,952 31.2 4,866,468 100.0


Source: Recompiled from MIC, Establishment and Enterprise Census of Japan (2006). Notes: 1. Business establishments of sole proprietors are not included. 2. Companies with 300 or fewer regular employees (100 or fewer in wholesaling and services, 50 or fewer in retailing

and eating and drinking places) or with capital stock of ¥300 million or less (¥100 million or less in wholesaling, ¥50 million or less in retailing, eating and drinking places, and services) are treated as SMEs as defined under the revised Small and Medium Enterprise Basic Law.

3. Companies with 20 or fewer regular employees (5 or fewer in wholesaling, retailing, eating and drinking places, and services) are treated as small enterprises.

4. The percentages of the total for small enterprises indicate the proportion of all regular employees accounted for by small enterprises.


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Table 4 Trends in entry and exit rates (non-primary industries)1) Enterprises (sole proprietorships + corporate enterprises)

YearSurvey interval

(months)

No. of enterprises at start of period

No. of entries

Entry survey period

(months)

Increase in no. of

enterprises

Annual average increase in no. of

enterprises

Annual average no. of entries

Annual average no.

of exits

Entry rate (%)

Exit rate (%)

75-78 37 4,682,092 681,775 29.5 355,485 115,292 277,332 162,040 5.9 3.5

78-81 36.5 5,037,577 739,996 30 318,925 104,852 295,998 191,146 5.9 3.8

81-86 60 5,356,502 1,039,351 54 72,096 14,419 230,967 216,548 4.3 4.0

86-91 60 5,428,598 853,991 54 -126,240 -25,248 189,776 215,024 3.5 4.0

91-96 63 5,302,358 967,779 81 -147,968 -28,184 143,375 171,559 2.7 3.2

96-99 33 5,154,390 507,531 33 -253,477 -92,173 184,557 288,147 3.6 5.6

99-01 27 4,900,913 638,289 27 -160,984 -71,548 283,684 334,755 5.8 6.8

As of 2001 (1993 classification) 4,739,92901-04 32 4,739,635 447,148 32 -360,347 -135,130 167,681 289,731 3.5 6.1

04-06 28 4,379,288 518,671 28 -138,962 -59,555 222,288 273,282 5.1 6.2As of 2006

4,240,326

2) Corporate enterprises (independent establishments and head offices, not including branches)

YearSurvey interval

(months)

No. of business companies at start of period

No. of entries

Entry survey period

(months)

Increase in no. of corporate enterprises

Annual average increase in no. of corporate enterprises


Annual average no.

of exits

Entry rate (%)

Exit rate (%)

75-78 37 921,768 113,039 29.5 118,905 38,564 45,982 7,418 5.0 0.8

78-81 36.5 1,040,673 139,678 30 138,146 45,418 55,871 10,453 5.4 1.0

81-86 60 1,178,819 234,223 54 143,689 28,738 52,050 23,312 4.4 2.0

86-91 60 1,322,508 266,717 54 230,506 46,101 59,270 13,169 4.5 1.0

91-96 63 1,553,014 310,761 81 112,167 21,365 46,039 24,674 3.0 1.6

96-99 33 1,665,181 174,728 33 -6,801 -2,473 63,537 87,773 3.8 5.3

99-01 27 1,658,380 226,701 27 -50,570 -22,476 100,756 105,414 6.1 6.4


04-06 28 1,519,987 197,819 28 -14,768 -6,329 84,780 83,972 5.6 5.5As of 2006

1,505,219

3) Sole proprietorships (independent establishments, head offices and branches)

YearSurvey interval

(months)

No. of sole proprietorships

at start of period

No. of entries

Entry survey period

(months)

Increase in no. of sole

proprietorships

Annual average increase in no. of

sole proprietorships


Annual average no.

of exits

Entry rate (%)

Exit rate (%)

75-78 37 3,760,324 568,736 29.5 236,580 76,729 231,350 154,622 6.2 4.1

78-81 36.5 3,996,904 600,318 30 180,779 59,434 240,127 180,693 6.0 4.5

81-86 60 4,177,683 805,128 54 -71,593 -14,319 178,917 193,236 4.3 4.6

86-91 60 4,106,090 587,274 54 -356,746 -71,349 130,505 201,855 3.2 4.9

91-96 63 3,749,344 657,018 81 -260,135 -49,550 97,336 146,886 2.6 3.9

96-99 33 3,489,209 332,803 33 -246,676 -89,700 121,019 200,374 3.5 5.7

99-01 27 3,242,533 411,588 27 -110,414 -49,073 182,928 229,341 5.6 7.1


04-06 28 2,859,301 320,852 28 -124,194 -53,226 137,508 189,310 4.8 6.6As of 2006

2,735,107


323

4) Business establishments

YearSurvey interval

(months)

No. of business establishments

at start of period

No. of entries

Entry survey period

(months)

Increase in no. of business

establishments

Annual average increase in no. of business establishments


Annual average no.

of exits

Entry rate (%)

Exit rate (%)

66-69 36 4,230,738 964,474 42 419,757 139,919 275,564 135,645 6.5 3.2

69-72 38 4,650,495 863,915 32 463,228 146,283 323,968 177,686 7.0 3.8

72-75 32.5 5,113,723 744,865 28.5 275,577 101,752 313,627 211,876 6.1 4.1

75-78 37 5,389,300 818,730 29.5 460,021 149,196 333,043 183,847 6.2 3.4

78-81 36.5 5,849,321 896,325 30 419,750 138,000 358,530 220,530 6.1 3.8

81-86 60 6,269,071 1,324,318 54 225,270 45,054 294,293 249,239 4.7 4.0

86-89 36 6,494,341 826,723 36 127,905 42,635 275,574 232,939 4.2 3.6

89-91 24 6,622,246 406,977 18 -80,505 -40,235 271,318 311,571 4.1 4.7

91-94 33.7 6,541,741 846,139 33.7 -9,761 -3,476 301,296 305,774 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

96-99 33 6,502,924 740,389 33 -318,095 -115,671 269,232 384,884 4.1 5.9

99-01 27 6,184,829 937,122 27 -65,768 -29,230 416,499 445,636 6.7 7.2


04-06 28 5,709,974 846,368 28 -7,193 -3,083 362,729 369,309 6.4 6.5As of 2006

5,702,781

Source: MIC, Establishment and Enterprise Census of Japan.Notes: 1. The annual average number of exits in 1986-89 (business establishments only), 1991-94 (business establishments

only), 1996-99, 1999-2001, 2001-04 and 2004-06 are calculated based on the published figures for exits of business establishments. However, the numbers of entries (exits) of business corporations in 1996-99, 1999-2001, 2001-04 and 2004-06 are calculated by adding entries (exits) of independent establishments and head offices according to Volume 1 Result of Establishments for Japan Table 7 of the 1999 survey, Special Result concerning Changes and Conversions in Establishments for Japan (2) State of Changes in 1999-2001 Table 8 of the 2001 survey, Volume 1 Result of Establishments for Japan Table 10 of the 2004 survey and Result of Establishment for Japan Table 46 of the 2006 survey.

2. The number of entries in 1994-1996 is the number of business establishments established in and after 1995. 3. Survey conducted as the Establishment Census until 1991, and the Establishment Directory Maintenance Survey in

1989 and 1994. 4. The classification of industries as of 2004 and as of 2006 is according to MIC, Japan Standard Industrial

Classification (revised March 2002). 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 of enterprises and business establishments at the beginning of the period under the new system of classification.

6. As the number of enterprises calculated based on the number of enterprises given in Supplementary statistical data Table 1(2) does not include the business establishments of sole proprietors classified as branches, the number does not match the number of enterprises at the start of the period shown in 1) above.

Note: Method of calculation of entry and exit rates based on MIC’s Establishment and Enterprise Census of Japan.

1. DefinitionsThe entry rate indicates “(1) the average number of establishments (or enterprises) newly established” during a particular

period as a proportion of “(2) the number of establishments (or enterprises) already in existence at the start of the period,” and is calculated by dividing (1) by (2). The exit rate is calculated in a similar manner.

2. Example of calculationThe annual average number of entries and exits of establishments, which serves as the numerator in the above formula, is

calculated differently according to the period for which the entry and exit rates are being calculated. This is because there are differences in how the results of the MIC’s Establishment and Enterprise Census of Japan are tabulated depending on the year of the survey. Entry and exit rates were calculated according to (1) below for the periods 1986-1989, 1991-1994, 1996-1999, 1999-2001, 2001-2004, and 2004-2006 and according to (2) for other periods. If the periods are the same, the entry and exit rates based on both the number of establishments and number of enterprises can be calculated by the same method.

(1) Example of calculation for 1986-1989, 1991-1994, 1996-1999, 1999-2001, 2001-2004, and 2004-2006 (2004-2006 based on number of establishments)

1) MIC’s Establishment and Enterprise Census of Japan at the end of the period classifies the number of establish-ments into continuing establishments, new establishments and closed establishments according to the state of changes. The number of new establishments (i.e. entries) and number of closed establishments are each divided bythe28-monthperiodfromJune1,2004(thedateoftheprevioussurvey)untilOctober1,2006,andthen

324

multiplied by 12 to calculate the annual average number of entries of establishments and annual average number of exits of establishments.

(annualaveragenumberofentriesofestablishments)=846,368/28×12>362,729 (annual average number of exits of establishments) = 861,722 / 28 × 12 >369,3092) The annual average number of entries of establishments and annual average number of exits of establishments

calculated in 1) are each divided by the number of establishments at the start of the period (2004), and multiplied by 100.

(entryrate)=362,729/5,709,974×100> 6.4 (%) (exitrate)=369,309/5,709,974×100> 6.5 (%)

(2) Example of calculation for periods other than 1986-1989, 1991-1994, 1996-1999, 1999-2001, 2001-2004, and 2004-2006

(1994-1996 based on number of establishments)1) MIC’s Establishment and Enterprise Census of Japan at the end of the period classifies the number of establish-

mentsaccordingtotimingofentry,andthenumberofentriesofestablishmentsfrom1995onwardwas418,613.AstheperiodofsurveyingofentriesfromJanuary1,1995totheendoftheperiodonOctober1,1996is21months, the number of entries of establishments is divided by 21 and multiplied by 12 to calculate the annual average number of entries of establishments. As this census does not report the number of exits of establishments, the annual average number of exits of establishments is calculated by subtracting the annual average increase in the number of establishments from the annual average number of entries of establishments. The annual average increase in the number of establishments is calculated by the number of establishments at the end of the period minusthenumberofestablishmentsatthestartoftheperiod,dividedbythe29.3monthperiodfromApril20,1994(thedateoftheprevioussurvey)untilOctober1,1996,andthenmultipliedby12.

(annualaveragenumberofentriesofestablishments)=418,613/21×12>239,207 (annualaverageincreaseinnumberofestablishments)=(6,502,924-6,531,980)/29.3×12> -11,990 (annualaveragenumberofexitsofestablishments)=(239,207-(-11,900))=251,1072) The annual average number of entries of establishments and the annual average number of exits of establish-

mentscalculated in1)areeachdividedbythenumberofestablishments(6,531,980)at thebeginningof theperiod (1994), and then multiplied by 100.

(entryrate)=239,207/6,531,980×100>3.7(%) (exitrate)=251,107/6,531,980×100>3.8(%)

3. AdditionalinformationAnother method of calculating the entry and exit rates in MIC’s Establishment and Enterprise Census of Japan other

than by using the above published data is to calculate the number of entries and exits by tracing them back using the data from individual questionnaires. Surveys since 1991 have assigned a code consisting of a municipality code, survey block number and establishment number, and this code can be used to concatenate establishments with the results of surveys in other years.

Example: Number of entries and exits of establishments in 1999-2001 Number of entries of establishments: Number of establishments not found to exist at the start of the period

(1999) and whose existence could be confirmed at the end of the period (2001). Number of exits of establishments: Number of establishments found to exist at the start of the period (1999)

and whose existence could not be confirmed at the end of the period (2001).However, as the data from individual questionnaires cannot be traced back to 1991 and earlier, the calculations in this

publication are as a rule performed according to 2. above based on data published by MIC so as to ensure the continuity of data.

By way of exception, entry and exit rates by industry subcategory and municipality are calculated based on data from individual questionnaires due to the difficulty in practice of calculating the rates by timing of establishment using data published by MIC (which significantly reflect changes in industry, etc.).

* Important points regarding MIC’s Establishment and Enterprises Census of Japan Establishments that migrated across the boundaries of survey blocks (about 248,000 as of March 2006 and each con-

sistedofaround30establishments)arecountedasnewestablishmentsintheirnewlocations,andclosedestablishmentsin their former locations.

As establishments from which questionnaires could not be collected for reasons such as temporary closure at the time of the survey are also counted as new establishments (entries) or closed establishments, it needs to be noted that both the number of new establishments and closed establishments may be larger than in reality.


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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


Entry 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 6.4Exit Rate 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

ManufacturingEntry 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 3.4Exit 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

WholesalingEntry 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 5.6Exit 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

RetailingEntry 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 5.7Exit 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

ServicesEntry 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 6.4Exit 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

Source: MIC, Establishment and Enterprise Census of Japan. Notes: 1. Entries and exits of business establishments, including openings and closures due to opening, closure, and

movement of branches and factories. 2. Survey conducted as the Establishment Census up to 1991 and the Establishment Directory Maintenance Survey in

1989 and 1994. 3. See Table 4 regarding the method of calculation of the entry and exit rates. 4. 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). 5. “Services” in 2001-04 and 2004-06 consists of “services (not otherwise classified).”

Table 6 Trends in entry and exit rates based on number of business establishments with employees

(Unit: %)Fiscal year 81 82 83 84 85 86 87 88 89 90Entry rate 7.2 6.4 6.1 5.9 5.8 6.0 6.8 7.4 6.7 6.3Exit rate 3.7 5.8 4.3 4.2 4.2 4.1 3.7 3.4 3.2 3.0

91 92 93 94 95 96 97 98 99 005.8 5.1 4.6 4.8 4.6 4.7 4.2 3.9 4.4 4.93.3 3.3 3.4 3.4 3.6 2.5 2.8 3.1 4.0 4.0

01 02 03 04 05 06 074.4 4.1 4.0 4.1 4.4 4.8 5.0 4.4 4.6 4.8 4.5 4.4 4.3 4.4

Source: MHLW, Annual Report on Employment Insurance Programs. Notes: 1. Entry rate = Number of business establishments newly covered by employment insurance in fiscal year concerned

/ Number of business establishments 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 / Number of 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).

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Table 7 Trends in number of incorporation registrations and company entry and exit ratesYear 55 56 57 58 59 60 61 62 63 64

No. of incorporation registrations 77,323 51,391 54,216 53,452 57,270 62,143 65,155 63,402 71,483 72,926Company entry rate (%) 19.6 12.5 12.4 12.2 12.0 12.4 12.1 11.0 11.5 11.1Company exit rate (%) 15.2 6.1 12.7 3.0 6.6 5.1 4.9 3.9 5.4 3.4

65 66 67 68 69 70 71 72 73 7471,145 81,418 88,214 77,857 88,521 93,778 97,692 112,903 119,226 96,286

10.1 10.9 11.1 9.3 9.9 10.0 10.0 10.7 10.6 8.04.4 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 8496,158 102,950 100,845 93,799 103,972 100,802 96,071 93,293 95,879 104,061

7.5 7.7 7.2 6.3 6.8 6.3 5.9 5.5 5.5 5.83.2 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 94105,941 105,133 117,475 140,520 165,718 176,058 172,105 107,459 97,603 92,522

5.7 5.5 6.0 7.0 8.0 8.1 7.6 4.5 3.9 3.64.1 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 0492,885 103,723 92,610 82,502 88,036 98,350 90,687 87,544 95,381 101,100

3.6 3.9 3.5 3.1 3.3 3.6 3.3 3.2 3.4 3.72.1 2.3 4.5 2.0 2.2 2.4 2.5 2.7 4.1 3.1

05 06 07103,545 115,178 101,981

3.7 4.1 3.63.1 3.4 2.7

Sources: MOJ, Annual Report of Statistics on Civil Affairs, Litigation and Civil Liberties; National Tax Agency, National Tax Agency Annual Statistics Report.

Notes: 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 in 2007 is the number of companies as June 30, 2008.


327

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

4-9 213,308 198,411 190,640 206,808 186,111 186,698 161,085 144,216 150,551 130,041 143,094 121,626 117,237

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 62,423

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 63,773

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 11,060

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 3,010

1,000 or more 645 620 605 587 562 529 522 466 443 460 465 480 529

4-299 384,019 365,946 354,627 370,154 342,019 338,033 312,891 287,634 290,753 267,918 273,475 255,172 254,493

300 or more 3,707 3,666 3,619 3,559 3,438 3,388 3,376 3,214 3,158 3,170 3,241 3,371 3,539

Total 387,726 369,612 358,246 373,713 345,457 341,421 316,267 290,848 293,911 271,088 276,716 258,543 258,032

(2) Number of workers Upper row: 1,000 workers, lower row: % of total

YearNo. of workers

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

4-91,272 1,199 1,155 1,231 1,119 1,111 957 860 879 777 852 731 712

12.3 11.9 11.6 12.5 11.9 12.1 10.8 10.3 10.7 9.6 10.4 8.9 8.4

10-191,061 1,036 1,007 1,021 971 938 976 921 894 870 792 824 849

10.3 10.3 10.1 10.4 10.4 10.2 11.0 11.1 10.9 10.7 9.7 10.0 10.0

20-993,192 3,152 3,107 3,044 2,921 2,846 2,722 2,579 2,533 2,508 2,479 2,480 2,537

30.9 31.2 31.3 30.9 31.1 31.0 30.7 31.0 30.8 30.9 30.4 30.1 29.9

100-2991,897 1,879 1,881 1,834 1,776 1,776 1,739 1,664 1,675 1,696 1,712 1,743 1,792

18.4 18.6 18.9 18.6 18.9 19.3 19.6 20.0 20.4 20.9 21.0 21.2 21.1

300-9991,539 1,528 1,511 1,484 1,427 1,417 1,405 1,337 1,328 1,321 1,353 1,425 1,480

14.9 15.1 15.2 15.1 15.2 15.4 15.8 16.1 16.1 16.3 16.6 17.3 17.4

1,000 or more

1,359 1,309 1,276 1,224 1,164 1,097 1,067 963 920 946 972 1,022 1,124

13.2 13.0 12.8 12.4 12.4 11.9 12.0 11.6 11.2 11.7 11.9 12.4 13.2

4-2997,422 7,266 7,150 7,130 6,787 6,670 6,395 6,024 5,980 5,851 5,834 5,778 5,891

71.9 71.9 72.0 72.5 72.4 72.6 72.1 72.4 72.7 72.1 71.5 70.2 69.3

300 or more2,898 2,837 2,787 2,708 2,591 2,513 2,471 2,300 2,248 2,266 2,325 2,448 2,604

28.1 28.1 28.0 27.5 27.6 27.4 27.9 27.6 27.3 27.9 28.5 29.8 30.7

Total10,321 10,103 9,937 9,837 9,378 9,184 8,866 8,324 8,228 8,118 8,159 8,225 8,495

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

(3) Value of shipments Upper row: ¥ billion, lower row: % of total

YearNo. of workers

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

4-913,750 13,491 13,400 13,722 12,194 12,198 10,250 9,103 9,055 8,450 9,283 8,361 8,747

4.5 4.3 4.1 4.5 4.2 4.1 3.6 3.4 3.3 3.0 3.1 2.7 2.6

10-1916,318 16,314 16,492 16,280 15,001 14,742 14,733 13,384 12,986 13,039 12,429 13,097 14,403

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

20-9967,531 68,957 70,216 67,443 63,630 63,915 61,267 57,135 57,163 59,035 59,991 61,152 65,235

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

100-29959,541 60,761 63,917 60,493 59,724 62,770 60,568 58,154 59,069 63,787 64,630 68,120 69,978

19.5 19.4 19.8 19.8 20.5 20.9 21.1 21.6 21.6 22.4 21.8 21.6 20.8

300-99970,635 73,377 76,835 72,455 68,720 73,269 70,269 66,184 69,312 71,187 76,880 84,539 86,935

23.1 23.4 23.8 23.7 23.6 24.4 24.5 24.6 25.3 25.0 26.0 26.9 25.9

1,000 or more

78,256 80,169 82,212 75,447 72,180 73,585 69,580 65,402 66,149 68,963 72,588 79,567 90,557

25.6 25.6 25.4 24.7 24.8 24.5 24.3 24.3 24.2 24.2 24.5 25.3 27.0

4-299157,139 159,523 164,025 157,938 150,550 153,624 146,818 137,776 138,274 144,311 146,333 150,729 158,362

51.3 51.0 50.8 51.6 51.7 51.1 51.2 51.1 50.5 50.7 49.5 47.9 47.2

300 or more148,890 153,546 159,047 147,902 140,900 146,854 139,849 131,586 135,461 140,150 149,468 164,106 177,492

48.7 49.0 49.2 48.4 48.3 48.9 48.8 48.9 49.5 49.3 50.5 52.1 52.8

Total306,030 313,068 323,072 305,840 291,450 300,478 286,667 269,362 273,734 284,461 295,800 314,835 335,854

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

Source: METI, Census of Manufactures.Notes: 1. Based on statistics for business establishments. The “Total” may not correspond to the total value of the items as

they have been rounded off. 2. Preliminary estimates for 2007. Figures for 2006 and earlier were basically recalculated annually from data from the

“Industry” section. 3. Table (1) shows the number of business establishments by number of workers at business establishments (plants). 4. 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.

328

Table 9 Capital investment and value added in manufacturing(1) Capital investment Upper row: ¥ billion, lower row: % of total

YearNo. of workers

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

30-991,734 1,962 2,137 1,975 1,659 1,522 1,712 1,416 1,399 1,465 1,608 1,850 1,963

15.4 15.5 16.0 14.8 15.0 13.4 14.5 14.9 15.7 14.2 13.7 14.1 14.2

100-2992,658 2,829 2,982 2,929 2,621 2,604 2,812 2,292 2,121 2,374 2,719 3,058 3,110

23.6 22.4 22.3 22.0 23.6 23.0 23.7 24.1 23.8 22.9 23.2 23.3 22.4

300-9993,209 3,906 4,052 4,195 3,271 3,529 3,571 2,859 2,606 2,915 3,343 4,140 4,171

28.5 30.9 30.3 31.4 29.5 31.2 30.1 30.1 29.2 28.2 28.5 31.6 30.1

1,000 or more

3,643 3,936 4,210 4,244 3,539 3,670 3,751 2,942 2,799 3,593 4,069 4,048 4,614

32.4 31.2 31.5 31.8 31.9 32.4 31.7 30.9 31.4 34.7 34.7 30.9 33.3

30-2994,392 4,791 5,119 4,904 4,280 4,127 4,524 3,708 3,520 3,839 4,327 4,908 5,072

39.1 37.9 38.3 36.8 38.6 36.4 38.2 39.0 39.4 37.1 36.9 37.5 36.6

300 or more6,852 7,842 8,262 8,439 6,809 7,199 7,322 5,800 5,405 6,508 7,412 8,189 8,785

60.9 62.1 61.7 63.2 61.4 63.6 61.8 61.0 60.6 62.9 63.1 62.5 63.4

Total11,244 12,632 13,381 13,343 11,089 11,326 11,845 9,508 8,925 10,348 11,739 13,096 13,858

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

Investment per worker (Unit: ¥1,000)Year

No. of workers

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

30-99 791 906 1,000 940 820 771 907 788 792 838 925 1,061 1,102

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 1,735

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 2,818

1,000 or more 2,680 3,006 3,299 3,466 3,041 3,347 3,516 3,056 3,042 3,799 4,186 3,959 4,104

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 1,420

300 or more 2,364 2,764 2,964 3,116 2,628 2,864 2,963 2,522 2,404 2,872 3,188 3,346 3,374

Overall average 1,609 1,836 1,966 2,009 1,736 1,808 1,943 1,650 1,569 1,812 2,033 2,207 2,243

(2) Value added Upper row: ¥ billion, lower row: % of totalYear

No. of workers

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

4-97,322 7,163 7,071 7,280 6,487 6,531 5,379 4,771 4,778 4,427 4,842 4,305 4,321

6.2 6.0 5.9 6.4 6.0 5.9 5.2 4.9 4.8 4.3 4.6 4.0 4.0

10-197,453 7,458 7,482 7,452 6,869 6,760 7,114 6,514 6,317 6,283 5,917 6,169 6,483

6.4 6.3 6.2 6.6 6.4 6.1 6.9 6.7 6.4 6.2 5.7 5.7 6.0

20-9927,402 28,045 28,215 27,023 25,773 26,014 24,849 22,945 22,800 23,378 23,349 23,247 23,515

23.4 23.5 23.5 23.9 23.9 23.6 24.1 23.5 23.1 23.0 22.4 21.6 21.7

100-29922,935 23,227 23,977 22,482 22,502 23,168 22,266 21,483 22,209 23,512 23,648 23,842 23,261

19.6 19.5 20.0 19.9 20.9 21.0 21.6 22.0 22.5 23.1 22.7 22.2 21.5

300-99925,564 26,055 26,263 24,888 23,638 24,707 22,801 21,352 21,733 22,987 23,754 25,603 24,613

21.8 21.8 21.9 22.0 21.9 22.4 22.1 21.9 22.0 22.6 22.8 23.8 22.7

1,000 or more

26,527 27,355 26,865 24,067 22,590 23,063 20,896 20,394 20,821 21,226 22,726 24,433 26,164

22.6 22.9 22.4 21.3 20.9 20.9 20.2 20.9 21.1 20.8 21.8 22.7 24.1

4-29965,113 65,894 66,745 64,238 61,631 62,472 59,608 55,713 56,104 57,600 57,756 57,562 57,580

55.6 55.2 55.7 56.8 57.1 56.7 57.7 57.2 56.9 56.6 55.4 53.5 53.1

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 53,259

49.3 49.2 49.8 50.3 51.1 50.7 52.5 52.3 52.0 52.2 50.8 49.5 49.2

300 or more52,091 53,410 53,128 48,955 46,229 47,770 43,697 41,746 42,554 44,213 46,480 50,036 50,777

44.4 44.8 44.3 43.2 42.9 43.3 42.3 42.8 43.1 43.4 44.6 46.5 46.9

Total117,204 119,304 119,873 113,193 107,860 110,243 103,305 97,459 98,658 101,812 104,236 107,598 108,357

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

Source: METI, Census of Manufactures.Notes: 1. Based on statistics for business establishments. The “Total” may not correspond to the total value of the items as

they have been rounded off. 2. Preliminary estimates for 2007. Figures for 2006 and earlier were basically recalculated annually from data from the

“Industry” section. 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 (2), figures for business establishments with 4-9 workers up to 2000 and business establishments with 29

or fewer workers since 2001 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 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.


329

Table 10 Number of business establishments and workers and value of sales in wholesaling(1) Number of business establishments and workers Lower row: % of total

No. of workers

No. of business establishments (1,000) No. of workers (1,000)1991 1994 1997 1999 2002 2004 2007 1991 1994 1997 1999 2002 2004 2007

1-2101.8 90.4 83.1 95.5 84.7 86.4 77.2 177.5 158.2 144.1 155.4 143.5 145.2 128.8

(21.4) (21.1) (21.2) (22.4) (22.3) (23.0) (23.1) (3.7) (3.5) (3.5) (3.5) (3.6) (3.8) (3.7)

3-4123.3 103.0 94.1 98.2 88.7 89.7 78.4 424.8 356.4 325.4 339.8 306.8 309.7 270.8

(25.9) (24.0) (24.0) (23.1) (23.4) (23.9) (23.4) (8.9) (7.8) (7.8) (7.6) (7.7) (8.1) (7.7)

5-9132.1 120.1 109.0 118.1 105.4 102.9 90.8 861.1 786.0 714.4 774.1 690.5 674.0 595.0

(27.8) (28.0) (27.8) (27.7) (27.8) (27.4) (27.1) (18.0) (17.2) (17.2) (17.2) (17.3) (17.7) (16.9)

10-1970.5 67.8 61.8 67.2 59.7 57.3 52.1 938.0 901.8 823.2 895.4 795.3 764.2 695.4

(14.8) (15.8) (15.8) (15.8) (15.7) (15.3) (15.6) (19.7) (19.7) (19.8) (19.9) (19.9) (20.1) (19.7)

20-4936.4 36.0 32.7 35.3 30.9 29.6 27.6 1,066.1 1,055.4 960.6 1,038.4 904.9 866.8 809.9

(7.6) (8.4) (8.4) (8.3) (8.1) (7.9) (8.2) (22.3) (23.0) (23.1) (23.1) (22.6) (22.8) (23.0)

50-998.4 8.4 7.6 8.1 7.1 6.5 6.1 567.6 565.2 514.5 546.4 477.9 433.2 408.9

(1.8) (2.0) (1.9) (1.9) (1.9) (1.7) (1.8) (11.9) (12.3) (12.4) (12.2) (11.9) (11.4) (11.6)

1-99472.5 425.7 388.4 422.5 376.4 372.4 332.1 4,034.8 3,823.1 3,482.3 3,749.5 3,319.0 3,193.1 2,909

(99.3) (99.2) (99.2) (99.2) (99.2) (99.2) (99.2) (84.5) (83.4) (83.6) (83.4) (82.9) (83.9) (82.5)

100 or more

3.5 3.6 3.2 3.3 3.1 2.8 2.7 737.9 758.3 682.4 746.8 682.9 610.5 617.5

(0.7) (0.8) (0.8) (0.8) (0.8) (0.8) (0.8) (15.5) (16.6) (16.4) (16.6) (17.1) (16.1) (17.5)

Total 476.0 429.3 391.6 425.9 379.5 375.3 334.8 4,772.7 4,581.4 4,164.7 4,496.2 4,002.0 3,803.7 3,526.3

(2) Total sales during the year and total sales during the year per worker Lower row: % of totalNo. of

workersTotal sales during the year (¥ billion) Total sales during the year per worker (¥10,000)

1991 1994 1997 1999 2002 2004 2007 1991 1994 1997 1999 2002 2004 2007

1-28,162 6,595 6,524 7,122 6,703 6,761 6,466

4,626 4,180 4,541 4,589 4,684 4,664 5,031(1.4) (1.3) (1.4) (1.4) (1.6) (1.7) (1.6)

3-423,788 19,413 18,761 18,269 16,468 16,347 15,643

5,610 5,453 5,774 5,380 5,379 5,284 5,784(4.2) (3.8) (3.9) (3.7) (4.0) (4.0) (3.8)

5-964,403 54,115 53,712 51,949 46,523 45,869 45,721

7,487 6,890 7,526 6,714 6,745 6,809 7,693(11.2) (10.5) (11.2) (10.5) (11.3) (11.3) (11.1)

10-1982,024 72,162 71,782 71,069 61,319 61,045 62,742

8,753 8,008 8,727 7,940 7,720 7,993 9,032(14.3) (14.0) (15.0) (14.3) (14.8) (15.1) (15.2)

20-49108,734 98,992 96,020 97,431 83,828 85,057 83,458

10,212 9,380 10,006 9,387 9,274 9,821 10,321(19.0) (19.2) (20.0) (19.7) (20.3) (21.0) (20.2)

50-9968,696 64,689 61,076 62,778 51,321 52,348 52,100

12,122 11,452 11,878 11,499 10,745 12,093 12,751(12.0) (12.6) (12.7) (12.7) (12.4) (12.9) (12.6)

1-99355,807 315,966 307,875 308,618 266,162 267,426 266,130

8,831 8,265 8,851 8,235 8,030 8,381 9,161(62.1) (61.4) (64.2) (62.3) (64.4) (66.0) (64.4)

100 or more

217,358 198,351 171,939 186,835 147,192 138,071 147,40229,468 26,158 25,212 25,022 21,567 22,627 23,896

(37.9) (38.6) (35.8) (37.7) (35.6) (34.0) (35.6)

Total 573,165 514,317 479,813 495,453 413,355 405,497 413,532 12,024 11,236 11,533 11,024 10,341 10,668 11,741

Source: METI, Census of Commerce. Notes: 1. The figures are tabulated according to the January 1984 revised system of industry classification for 1991, the May

1993 revised system for 1994-1999, and the March 2002 revised system for 2002-2007. 2. The 1999 survey was conducted at the same time as the MIC’s Establishment and Enterprise Census of Japan

(a simplified questionnaire was used for both surveys), which determines existing business establishments. The figures are not therefore continuous with the figures for previous 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.

330

Table 11 Number of business establishments and workers and value of sales in retailing (1) Number of business establishments and workers Lower row: % of total

No. of workers

No. of business establishments (1,000) No. of workers (1,000)1991 1994 1997 1999 2002 2004 2007 1991 1994 1997 1999 2002 2004 2007

1-2847.2 764.8 709.0 685.0 603.4 568.8 503.8 1,381.3 1,240.0 1,146.0 1,035.1 966.3 906.8 795.1

(53.2) (51.0) (49.9) (48.7) (46.4) (45.9) (44.3) (19.9) (16.8) (15.6) (12.9) (12.1) (11.7) (10.5)

3-4416.9 370.9 350.3 317.2 297.6 284.1 252.7 1,404.5 1,256.1 1,186.6 1,076.0 1,011.4 962.4 859.1

(26.2) (24.7) (24.7) (22.5) (22.9) (22.9) (22.2) (20.2) (17.0) (16.1) (13.4) (12.7) (12.4) (11.3)

5-9214.0 222.5 212.4 226.8 218.7 207.7 201.8 1,336.9 1,405.2 1,342.5 1,448.8 1,404.5 1,334.9 1,302.2

(13.4) (14.8) (15.0) (16.1) (16.8) (16.8) (17.7) (19.3) (19.0) (18.3) (18.0) (17.6) (17.2) (17.2)

10-1971.9 89.6 93.5 111.9 114.8 112.4 114.4 948.2 1,187.2 1,248.3 1,503.8 1,543.0 1,516.5 1,543.1

(4.5) (6.0) (6.6) (8.0) (8.8) (9.1) (10.1) (13.7) (16.1) (17.0) (18.7) (19.4) (19.5) (20.4)

20-4933.1 42.0 43.3 51.9 50.7 50.2 49.6 956.4 1,200.9 1,232.2 1,470.3 1,439.8 1,421.6 1,403.7

(2.1) (2.8) (3.0) (3.7) (3.9) (4.1) (4.4) (13.8) (16.3) (16.8) (18.3) (18.1) (18.3) (18.5)

1-491,583.1 1,489.9 1,408.5 1,392.8 1,285.1 1,223.1 1,122.3 6,027.3 6,289.4 6,155.7 6,534.0 6,364.9 6,142.2 5,903.3

(99.5) (99.3) (99.2) (99.0) (98.8) (98.8) (98.6) (86.9) (85.2) (83.7) (81.4) (79.8) (79.1) (77.9)

50 or more

8.1 10.1 11.2 14.1 14.9 14.9 15.5 909.2 1,094.7 1,195.1 1,494.6 1,607.9 1,620.1 1,676.1

(0.5) (0.7) (0.8) (1.0) (1.1) (1.2) (1.4) (13.1) (14.8) (16.3) (18.6) (20.2) (20.9) (22.1)

Total 1,591.2 1,499.9 1,419.7 1,406.9 1,300.1 1,238.0 1,137.9 6,936.5 7,384.2 7,350.7 8,028.6 7,972.8 7,762.3 7,579.4

(2) Total sales during the year and total sales during the year per worker Lower row: % of totalNo. of

workersTotal sales during the year (¥ billion) Total sales during the year per worker (¥10,000)

1991 1994 1997 1999 2002 2004 2007 1991 1994 1997 1999 2002 2004 2007

1-215,224 13,332 12,485 10,830 8,816 8,411 7,251

1,102 1,075 1,089 1,046 912 928 912(10.8) (9.3) (8.5) (7.5) (6.5) (6.3) (5.4)

3-423,006 20,054 19,573 15,464 13,457 12,646 11,891

1,638 1,597 1,649 1,437 1,331 1,314 1,384(16.4) (14.0) (13.2) (10.8) (10.0) (9.5) (8.8)

5-928,878 28,999 28,558 26,305 24,398 23,395 24,012

2,160 2,064 2,127 1,816 1,737 1,753 1,844(20.5) (20.2) (19.3) (18.3) (18.1) (17.6) (17.8)

10-1921,409 23,826 26,051 27,050 26,510 26,253 27,488

2,258 2,007 2,087 1,799 1,718 1,731 1,781(15.2) (16.6) (17.6) (18.8) (19.6) (19.7) (20.4)

20-4921,151 23,919 25,198 25,774 24,223 24,445 24,854

2,211 1,992 2,045 1,753 1,682 1,720 1,771(15.0) (16.7) (17.1) (17.9) (17.9) (18.3) (18.5)

1-49109,668 110,131 111,865 105,423 97,404 95,151 95,495

1,820 1,751 1,817 1,613 1,530 1,549 1,618(78.0) (76.8) (75.7) (73.3) (72.1) (71.4) (70.9)

50 or more

30,971 33,194 35,878 38,409 37,706 38,128 39,2103,406 3,032 3,002 2,570 2,345 2,353 2,339

(22.0) (23.2) (24.3) (26.7) (27.9) (28.6) (29.1)

Total 140,639 143,325 147,743 143,832 135,109 133,279 134,705 2,028 1,941 2,010 1,791 1,695 1,717 1,777

Source: METI, Census of Commerce. Notes: 1. The figures are tabulated according to the January 1984 revised system of industry classification for 1991, the May

1993 revised system for 1994-1999, and the revised March 2002 system for 2002-2007. 2. The 1999 survey was conducted at the same time as the MIC’s Establishment and Enterprise Census of Japan

(a simplified questionnaire was used for both surveys), which determines existing business establishments. The figures are not therefore continuous with the figures for previous 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.


331

Table 12 State of corporate bankruptcies(1) No. of corporate bankruptcies and debts (Unit: no. of bankruptcies, ¥100 million)

YearCategory 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

No. of bankruptcies

Overall 18,988 15,352 18,769 19,164 19,087 16,255 13,679 12,998 13,245 14,091 15,646

Enterprises with capital stock of under ¥100 million

18,749 15,135 18,497 18,819 18,687 15,877 13,392 12,755 13,011 13,826 15,257

Debts

Overall 137,484 136,214 238,850 165,196 137,824 115,818 78,177 67,035 55,006 57,279 122,920

Enterprises with capital stock of under ¥100 million

68,329 80,640 65,691 73,151 77,540 57,651 53,656 47,209 37,598 37,264 42,732

(2) No. of bankruptcies and debts by industry (Unit: no. of bankruptcies, ¥100 million)Year

Industry 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

ConstructionNo. of bankruptcies 5,668 4,650 6,214 6,154 5,976 5,113 4,002 3,783 3,855 4,018 4,467

Debts 22,236 12,860 14,510 20,592 24,976 15,591 11,037 8,439 7,282 8,124 12,765

ManufacturingNo. of bankruptcies 3,710 2,891 3,529 3,670 3,615 2,787 2,195 1,971 1,856 2,022 2,341

Debts 18,844 11,443 12,167 18,289 17,628 13,060 6,643 6,393 6,317 6,239 9,847

CommerceNo. of bankruptcies 5,884 4,427 5,448 5,535 5,411 4,573 3,811 3,512 3,664 3,893 4,048

Debts 22,563 14,036 46,506 41,047 19,566 14,745 10,619 7,909 7,242 7,726 9,878

Real estateNo. of bankruptcies 694 682 629 667 665 574 518 485 465 463 575

Debts 20,013 47,664 48,604 30,042 21,771 24,892 15,352 17,058 13,642 13,293 20,793

Financial and insurance

No. of bankruptcies 87 136 77 89 75 75 61 95 70 71 107

Debts 16,283 27,921 92,008 23,734 10,784 8,096 1,982 3,065 1,571 2,243 54,885

ServicesNo. of bankruptcies 2,000 1,868 2,052 2,198 2,398 2,380 2,245 2,329 2,499 2,713 2,911

Debts 34,508 19,823 21,552 26,004 39,235 31,919 29,408 21,009 15,094 16,083 10,705

OtherNo. of bankruptcies 945 698 820 851 947 753 847 823 836 911 1,197

Debts 3,037 2,468 3,503 5,488 3,864 7,515 3,136 3,162 3,858 3,572 4,047

TotalNo. of bankruptcies 18,988 15,352 18,769 19,164 19,087 16,255 13,679 12,998 13,245 14,091 15,646

Debts 137,484 136,214 238,850 165,196 137,824 115,818 78,177 67,035 55,006 57,279 122,920

(3) Breakdown of number of bankruptcies by cause (Unit: %)Year

Cause1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Slump in sales 50.5 54.2 55.2 55.2 57.9 62.9 65.8 65.2 63.4 64.9 65.2

Careless management 13.8 13.0 11.2 9.5 8.0 7.3 7.6 7.8 8.2 6.6 6.3

Chain reaction bankruptcy 9.9 7.9 7.7 8.3 8.8 8.2 7.3 6.9 7.1 7.1 7.7

Past difficulties 12.0 11.4 12.9 14.7 14.6 12.5 10.0 10.9 11.5 10.9 10.3

Other 13.8 13.5 13.0 12.3 10.7 9.1 9.2 9.2 9.8 10.5 10.5

Source: Tokyo Shoko Research, Ltd., Bankruptcy White Paper.Notes: 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. (3) Totals do not all sum to 100% due to rounding to two decimal places.

332

Table 13 Outstanding lending to SMEs by type of financial institution(Unit: ¥ trillion)

Year

Financial institution Month2003 2004 2005

Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec.

City banks 89.3 83.4 83.1 — — — — — — — — —

Regional banks 67.8 66.0 66.4 — — — — — — — — —Member banks of the Second Association of Regional Banks 24.4 23.2 23.2 — — — — — — — — —

Other 12.5 11.1 11.9 — — — — — — — — —Domestically-licensed banks’ banking accounts total 194.0 183.7 184.6 180.5 186.0 176.4 179.1 178.6 179.4 171.7 176.0 177.7

Domestically-licensed banks’ trust accounts, etc. 2.3 1.8 1.7 1.6 1.6 1.4 1.5 1.6 1.6 1.7 1.6 1.9

Credit associations 41.5 41.0 41.2 41.8 40.5 40.0 40.5 41.1 40.4 40.1 40.8 41.5

Credit cooperatives 9.2 9.1 9.2 9.2 9.1 9.0 9.1 9.2 9.2 9.1 9.2 9.3

Private-sector financial institutions total 246.9 235.5 236.7 233.1 237.3 226.9 230.3 230.5 230.6 222.5 227.6 230.4Private-sector financial institutions total (excluding trust accounts, etc.) 244.7 233.7 235.0 231.5 235.7 225.5 228.8 228.9 229.0 220.8 226.0 228.6

Japan Finance Corporation (Small and Medium Enterprise Unit)

7.5 7.5 7.6 7.6 7.6 7.6 7.6 7.6 7.5 7.4 7.3 7.2

Japan Finance Corporation (Micro Business and Individual Unit)

9.2 9.2 9.1 9.2 8.9 8.9 8.8 8.8 8.4 8.3 8.2 8.2

Shoko Chukin Bank 10.1 9.9 9.9 10.0 9.8 9.7 9.7 9.8 9.6 9.5 9.5 9.6

Government-affiliated financial institutions total 26.8 26.6 26.7 26.8 26.3 26.1 26.1 26.2 25.5 25.2 25.0 24.9

Total outstanding lending to SMEs 273.7 262.1 263.4 260.0 263.6 252.9 256.3 256.7 256.1 247.8 252.5 255.4Total outstanding lending to SMEs (excluding trust accounts, etc.) 271.5 260.3 261.7 258.3 262.0 251.5 254.8 255.1 254.5 246.1 250.9 253.5

Year

Financial institution Month2006 2007 2008

Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec.

City banks — — — — — — — — — — — —

Regional banks — — — — — — — — — — — —Member banks of the Second Association of Regional Banks — — — — — — — — — — — —

Other — — — — — — — — — — — —Domestically-licensed banks’ banking accounts total 181.6 177.8 186.2 187.1 187.4 183.0 184.6 185.3 184.1 179.8 179.6 184.0

Domestically-licensed banks’ trust accounts, etc. 1.9 1.9 1.7 1.7 1.6 1.6 1.5 1.5 1.5 1.4 1.3 1.2

Credit associations 40.8 40.5 41.5 42.1 41.7 41.3 41.9 42.3 41.6 41.3 42.0 43.0

Credit cooperatives 9.3 9.3 9.4 9.4 9.4 9.3 9.4 9.5 9.4 9.3 9.4 9.5

Private-sector financial institutions total 233.6 229.5 238.8 240.2 240.0 235.2 237.5 238.5 236.5 231.8 232.3 237.7Private-sector financial institutions total (excluding trust accounts, etc.) 231.7 227.6 237.1 238.6 238.5 233.6 236.0 237.1 235.1 230.4 231.0 236.5

Japan Finance Corporation (Small and Medium Enterprise Unit)

7.0 6.9 6.8 6.7 6.4 6.3 6.2 6.0 5.8 5.7 5.6 5.5

Japan Finance Corporation (Micro Business and Individual Unit)

7.8 7.7 7.6 7.5 7.2 7.1 7.0 7.0 6.8 6.8 6.7 6.7

Shoko Chukin Bank 9.4 9.3 9.3 9.4 9.3 9.3 9.2 9.3 9.1 8.9 8.9 9.0

Government-affiliated financial institutions total 24.3 23.9 23.7 23.5 23.0 22.7 22.4 22.4 21.7 21.4 21.1 21.3

Total outstanding lending to SMEs 257.9 253.3 262.5 263.8 263.0 257.9 259.9 260.9 258.2 253.2 253.4 258.9Total outstanding lending to SMEs (excluding trust accounts, etc.) 256.0 251.4 260.8 262.1 261.5 256.3 258.4 259.4 256.8 251.8 252.1 257.8

Sources: Compiled by the SME Agency from sources including BOJ, Financial and Economic Statistics Monthly.Notes: 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 (¥100 million) or less (¥100 million or less in wholesaling, ¥50 million or less in retailing, eating and drinking places, and services) or 300 or fewer regular employees (100 or fewer in wholesaling and services, 50 or fewer in retailing and eating and drinking places).

2. Other banks are trust banks and long-term credit banks. 3. From June 1999 onward, domestically-licensed bank trust accounts, etc. includes overseas branch accounts (to

domestic borrowers). 4. Outstanding lending to SMEs by credit associations is total outstanding lending excluding lending to individuals,

local governments, overseas yen loans and domestic loans transferred overseas. 5. Outstanding lending to SMEs by credit cooperatives is total outstanding lending including lending to individuals

and local governments, etc. 6. 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.

7. 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.

8. No breakdown is given of the domestically-licensed banks banking accounts total from December 2003 onward as no figures according to type of financial institution are published for domestic banks from that month.

9. Sources are as of the end of March 2009. Figures may be retroactively revised.


333

Table 14 Sales and operating costs of SMEs (surveyed industries) (Unit: ¥ million)

Survey items TotalCorporate enterprises (no. of workers) Sole

proprietorship5 or fewer 6-20 21-50 51 or moreNo. of enterprises in parent population 3,756,685 1,434,406 865,171 380,034 117,544 71,656 2,322,279

No. of workers 30,642,467 24,102,346 4,200,084 5,182,388 4,345,074 10,374,801 6,540,121

Sales 546,744,570 509,999,626 75,133,176 112,951,507 102,904,030 219,010,914 36,744,943

Operating expenses 529,290,669 499,027,140 74,594,451 111,159,027 100,626,371 212,647,291 30,263,529

Cost of sales 405,671,690 389,104,309 53,291,292 83,931,536 79,421,365 172,460,117 16,567,381

Cost of goods purchased … 201,988,463 33,898,152 45,480,054 43,936,952 78,673,304 …

Material costs … 55,280,208 4,460,014 10,505,649 9,462,403 30,852,142 …

Labor costs … 32,443,667 2,541,405 5,533,519 5,979,841 18,388,902 …

Outsourcing costs … 58,554,116 8,223,208 14,812,811 11,767,054 23,751,044 …

Depreciation costs … 5,530,636 768,551 669,572 1,508,745 2,583,768 …

Other costs … 35,307,219 3,399,961 6,929,930 6,766,371 18,210,957 …Selling and general administrative expenses

123,618,979 109,922,831 21,303,159 27,227,491 21,205,006 40,187,174 13,696,148

Personnel costs 57,113,615 53,232,899 10,186,011 13,653,326 10,355,287 19,038,275 3,880,716

Rent 7,691,866 6,488,848 1,652,699 1,507,585 1,114,709 2,213,855 1,203,019

Utilities expense … 2,198,127 501,140 514,807 408,982 773,196 …

Freight and packing costs … 4,474,255 275,489 730,822 852,982 2,614,962 …

Sales commission … 2,180,062 405,394 482,898 370,120 921,650 …

Advertising expenses … 2,141,457 225,052 453,458 370,706 1,092,241 …

Entertainment expenses … 1,676,241 498,010 522,059 283,717 372,455 …

Depreciation costs 6,155,686 4,856,939 1,112,950 1,130,125 905,814 1,708,050 1,298,747

Employee training costs … 186,992 22,697 41,458 38,738 84,099 …

Taxes and public charges 3,786,586 3,011,953 781,298 839,060 560,707 830,888 774,633

Other costs 48,871,226 29,475,059 5,642,419 7,351,893 5,943,244 10,537,503 6,539,034

Non-operating profit and loss … 1,201,030 216,941 197,043 252,936 534,110 …

Non-operating revenue … 6,517,642 1,234,102 1,416,267 1,308,169 2,559,105 …

Non-operating expenses … 5,316,612 1,017,160 1,219,224 1,055,232 2,024,995 …

Interest and discount expenses … 3,692,414 771,626 864,608 768,902 1,287,278 …

Other costs … 1,624,198 245,534 354,617 286,330 737,717 …

Ordinary profit (ordinary loss) 18,654,931 12,173,516 755,666 1,989,523 2,530,594 6,897,733 6,481,414

Extraordinary profit … 3,518,246 613,567 944,341 616,668 1,343,669 …

Extraordinary loss … 5,364,161 762,799 1,218,052 1,196,895 2,186,416 …

Pretax net profit (pretax net loss) … 10,327,601 606,435 1,715,812 1,950,368 6,054,986 …

After-tax net profit (after-tax net loss) … 5,357,984 106,921 843,000 966,550 3,441,514 …Number of enterprises including acquisition value of petty sum depreciable assets under expenses

289,794 202,683 81,012 67,602 29,917 24,152 87,111

Amount included in expenses for acquisition value of petty sum depreciable assets

222,348 165,502 46,898 47,608 32,002 38,994 56,846

Source: SME Agency, Basic Survey of Small and Medium Enterprises.Notes: 1. The survey results are estimates based on the 2008 Basic Survey of Small and Medium Enterprises conducted in

August 2008. 2. The number of enterprises in the parent population is the estimated figure as of August 2008 based on the 2004

Establishment and Enterprise Census of Japan Revised Report taking into consideration entries, exits, and changes in size according to industry (medium group) between the 2004 Establishment and Enterprise Census of Japan and the 2006 Establishment and Enterprise Census of Japan Revised Report.

3. The survey results are estimates based on a fact-finding survey of SMEs (including sole proprietorships) selected by drawing a sample from industries in the following the Divisions according to the Japan Standard Industrial Classification: construction; manufacturing; information and communications (excluding certain industry groups); transport (excluding certain industry groups); wholesaling and retailing; real estate; eating and drinking places; accommodations; and services (not otherwise classified) (excluding certain industry groups).

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).

334

Table 15 State of SME capital (balance sheet)(Unit: ¥ million)

Survey itemsCorporate enterprises (no. of workers)

5 or fewer 6-20 21-50 51 or moreNo. of enterprises in parent population 1,434,406 865,171 380,034 117,544 71,656

No. of workers 24,102,346 4,200,084 5,182,388 4,345,074 10,374,801

No. of joint stock company 716,129 326,887 230,191 92,569 66,483

No. of enterprises that have set a restriction on transfer of shares 541,614 237,670 170,268 75,662 58,015

Assets 388,865,742 66,734,350 84,556,210 78,449,627 159,125,556

Liquid assets 213,018,482 31,968,894 49,791,516 41,971,495 89,286,577

Cash and deposits 65,831,394 11,074,500 16,353,348 12,825,343 25,578,203

Bills receivable and account receivable 70,978,731 7,762,545 15,165,863 14,484,837 33,565,486

Securities 4,980,699 744,210 1,051,685 958,305 2,226,499

Inventory assets 40,767,781 6,372,746 9,599,069 7,629,304 17,166,662

Other liquid assets 30,459,877 6,014,893 7,621,552 6,073,706 10,749,727

Fixed assets 174,703,859 34,549,849 34,433,872 36,310,334 69,409,803

Tangible fixed assets 136,592,714 28,736,289 26,781,600 28,155,729 52,919,096Buildings, structures and accessory equipment for buildings

54,247,316 13,845,110 10,270,458 9,613,873 20,517,876

Machinery and equipment 15,085,743 2,286,944 2,311,418 2,956,637 7,530,743Ships and vessels, motor vehicles and transport equipment, industrial tools, appliances, and fixtures

12,114,419 2,917,763 2,454,904 2,045,864 4,695,888

Land 59,408,929 10,716,521 11,954,090 12,764,262 23,974,056

Construction in progress 1,517,372 366,364 321,499 386,821 442,688

Other tangible fixed assets 6,085,873 394,018 1,327,445 2,879,185 1,485,224

Accumulated depreciation -11,866,938 -1,790,431 -1,858,214 -2,490,913 -5,727,380

Intangible fixed assets 3,192,630 774,785 740,076 635,405 1,042,364

Investments and other assets 34,918,515 5,038,775 6,912,196 7,519,200 15,448,344

Deferred assets 1,143,401 215,606 330,821 167,798 429,176

Liabilities and net assets 388,865,742 66,734,350 84,556,210 78,449,627 159,125,556

Liabilities 269,983,338 54,627,747 59,381,438 53,498,624 102,475,529

Current liabilities 149,919,831 25,366,077 32,398,791 29,715,770 62,439,193

Bills for payment and accounts payable 58,244,639 6,165,112 11,889,543 12,142,133 28,047,851

Short-term borrowings (financial institutions) 40,124,866 5,705,269 8,938,785 8,626,263 16,854,550

Short-term borrowings (other than financial institutions) 13,572,676 5,948,376 3,300,590 1,718,512 2,605,198

Other current liabilities 37,977,649 7,547,320 8,269,874 7,228,862 14,931,594

Fixed liabilities 120,063,507 29,261,670 26,982,647 23,782,853 40,036,337

Corporate bonds 5,606,329 376,739 626,311 1,346,358 3,256,921

Long-term borrowings (financial institutions) 85,105,871 18,826,712 20,761,134 17,659,417 27,858,608

Long-term borrowings (other than financial institutions) 14,878,150 7,095,715 3,375,501 2,057,609 2,349,326

Other fixed liabilities 14,473,158 2,962,504 2,219,702 2,719,470 6,571,482

Net assets 118,882,403 12,106,602 25,174,772 24,951,003 56,650,026

Capital funds 18,073,102 6,862,659 5,146,083 2,900,423 3,163,937

Capital surplus 6,052,020 502,174 1,855,898 1,167,631 2,526,317

Retained earnings 87,524,562 4,083,570 16,615,888 19,125,361 47,699,744

Own shares -1,256,845 -215,526 -296,037 -166,739 -578,543

Other net assets 8,489,565 873,725 1,852,940 1,924,327 3,838,573

Source: SME Agency, Basic Survey of Small and Medium Enterprises.Notes: 1. The survey results are estimates based on the 2008 Basic Survey of Small and Medium Enterprises conducted in

August 2008. 2. The number of enterprises in the parent population is the estimated figure as of August 2008 based on the 2004

Establishment and Enterprise Census of Japan Revised Report taking into consideration entries, exits, and changes in size according to industry (medium group) between the 2004 Establishment and Enterprise Census of Japan and the 2006 Establishment and Enterprise Census of Japan Revised Report.

3. The survey results are estimates based on the survey of SMEs (including sole proprietorships) selected by drawing a sample from industries in the following the Divisions according to the Japan Standard Industrial Classification: construction, manufacturing, information and communications (excluding certain industry groups), transport (excluding certain industry groups), wholesaling and retailing, real estate; eating and drinking places, accommodations, and services (not otherwise classified) (excluding certain industry groups).


335

Table 16 Financial status, profit status and key financial indices of corporate enterprises (median values)

(1) All industries (non primary industry)

SizeItem FY

SMEs Large enterprises2005 2006 2007 2005 2006 2007

Fina

nces

and

pro

fits Sales 37,450 37,650 37,600 2,650,400 2,722,400 2,762,650

Total assets 45,200 44,150 43,900 2,130,900 2,122,700 2,113,750

Value added 9,100 9,200 9,000 501,500 508,300 511,650

(Personnel costs) 6,800 7,100 6,832 335,400 339,800 344,200

(Interest expenses) 100 100 100 3,700 3,700 4,400

No. of workers (including officers) 17 17 17 554 548 559

Key

fina

ncia

l ind

ices

Quick ratio 96.8 95.7 99.7 82.0 82.9 80.5

Equity ratio 27.6 27.5 27.4 37.4 37.6 31.9

Ratio of operating profit to total capital 1.9 1.9 1.7 3.9 4.0 3.9

Ratio of ordinary profit to sales 1.6 1.7 1.5 3.1 3.2 3.0

Total capital turnover 1.1 1.1 1.2 1.3 1.3 1.3

Interest rate on borrowing 1.5 1.5 1.6 1.4 1.4 1.7

Value-added ratio 26.9 26.1 25.6 20.9 20.7 20.3

Labor productivity 515 517 509 879 892 883

Capital-labor ratio 439 419 406 860 842 828

Ratio of fixed assets to long-term capital 77.1 75.8 58.1 82.4 80.7 70.5

Debt redemption period (years) 11.7 11.2 11.8 4.6 4.0 4.0

(2) Manufacturing

SizeItem FY


Fina

nces

and

pro

fits Sales 105,900 111,700 107,600 3,757,400 3,838,250 3,955,300

Total assets 98,400 97,500 97,600 3,683,100 3,669,200 3,685,200

Value added 23,600 24,000 22,300 771,700 782,650 773,400

(Personnel costs) 18,600 18,900 17,800 517,000 517,600 514,800



Key

fina

ncia

l ind

ices

Quick ratio 96.4 95.7 98.5 86.6 86.2 83.6

Equity ratio 28.0 28.9 25.2 45.6 45.7 38.8






Labor productivity 567 562 562 1,015 1,026 1,009

Capital-labor ratio 569 556 546 1,159 1,163 1,164



(3) Wholesaling/retailing

SizeItem FY


Fina

nces

and

pro

fits Sales 31,650 32,477 30,300 2,703,100 2,857,650 2,915,650

Total assets 21,400 22,500 18,480 1,579,400 1,580,200 1,590,300

Value added 4,383 4,672 4,064 301,400 325,300 324,300

(Personnel costs) 3,800 4,100 3,600 193,300 206,350 208,900



Key

fina

ncia

l ind

ices

Quick ratio 88.8 88.9 91.7 71.5 74.5 73.5

Equity ratio 19.2 18.3 22.2 27.2 29.5 24.6










336

(4) Services

SizeItem FY


Fina

nces

and

pro

fits Sales 26,520 25,200 19,750 1,081,150 1,021,400 953,900

Total assets 31,300 29,700 25,350 1,011,500 983,700 862,600

Value added 8,300 8,000 6,300 378,400 363,800 332,600

(Personnel costs) 6,667 6,700 5,500 237,650 224,600 206,800



Key

fina

ncia

l ind

ices

Quick ratio 110.7 108.9 116.9 96.4 99.6 96.9

Equity ratio 30.3 29.2 37.2 41.8 42.2 33.0










(5) Construction

SizeItem FY


Fina

nces

and

pro

fits Sales 24,800 24,050 23,000 4,494,700 4,905,100 5,030,100

Total assets 18,100 17,600 17,100 3,785,200 3,959,800 3,955,600

Value added 5,300 5,200 4,745 680,300 755,800 752,300

(Personnel costs) 4,800 4,562 4,300 551,900 550,200 539,500



Key

fina

ncia

l ind

ices

Quick ratio 103.8 100.0 102.3 84.0 84.2 85.1

Equity ratio 27.7 29.1 25.1 33.0 33.3 29.3










Source: Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.Notes: 1. SMEs are defined as enterprises with capital of ¥300 million or less, or 300 or fewer employees (capital of ¥100

million or less, or 100 or fewer employees in wholesaling, capital of ¥50 million or less, or 100 or fewer employees in services, and capital of ¥50 million or less, or 50 or fewer employees in retailing).

Large enterprises are all enterprises other than those defined as SMEs. 2. Value added = Net operating profit + Personnel costs (officers’ pay, employees’ pay, employee benefits) + Interest

expenses and discount charges + 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 and discount charges / (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-labor ratio 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 debt redemption period (in years) for enterprises whose denominator is negative is treated as 10,000 years.


337

Table 17 Financial status, profit status and key financial indices of small enterprises (median values)

(1) All industries (non primary industry)

SizeItem FY

Small enterprises2005 2006 2007

Fina

nces

and

p

rofit

s

Sales 6,500 6,508 6,600

Total assets 7,900 7,700 7,118

Value added 1,875 1,852 1,755

(Personnel costs) 1,500 1,469 1,400

(Interest expenses) 3 1 0

No. of workers (including officers) 5 4 5

Key

fina

ncia

l ind

ices

Quick ratio 100.0 100.0 104.0

Equity ratio 22.4 22.1 29.2

Ratio of operating profit to total capital 0.6 0.7 0.5

Ratio of ordinary profit to sales 0.7 0.8 0.6

Total capital turnover 1.0 1.0 1.1

Interest rate on borrowing 1.0 0.9 0.8

Value-added ratio 30.4 29.4 28.8

Labor productivity 379.9 380.2 367.8

Capital-labor ratio 241.4 230.0 211.1

Ratio of fixed assets to long-term capital 78.9 76.6 46.6

Debt redemption period (years) 20.4 18.4 19.9

(2) Manufacturing

SizeItem FY


Fina

nces

and

p

rofit

s

Sales 7,644 7,700 7,800

Total assets 7,400 7,787 7,000

Value added 2,483 2,429 2,366




Key

fina

ncia

l ind

ices

Quick ratio 106.9 111.5 109.8











(3) Wholesaling/retailing

SizeItem FY


Fina

nces

and

p

rofit

s

Sales 5,107 5,113 5,300

Total assets 3,800 3,600 3,600

Value added 854 898 800

(Personnel costs) 806 843 744



Key

fina

ncia

l ind

ices

Quick ratio 77.3 79.6 87.9


Ratio of operating profit to total capital -0.6 -0.8 -0.6









338

(4) Services

SizeItem FY


Fina

nces

and

p

rofit

s

Sales 2,615 2,305 2,386

Total assets 2,614 2,300 2,002

Value added 900 768 796

(Personnel costs) 799 700 724



Key

fina

ncia

l ind

ices

Quick ratio 94.4 92.2 103.3











(5) Construction

SizeItem FY


Fina

nces

and

p

rofit

s

Sales 12,400 12,300 11,500

Total assets 9,000 8,350 7,800

Value added 2,881 2,899 2,509




Key

fina

ncia

l ind

ices

Quick ratio 115.1 111.9 114.7











Source: Recompiled from MOF, Financial Statements Statistics of Corporations by Industry, Annually.Notes: 1. Small enterprises are defined as enterprises that are SMEs with 20 or fewer employees (or wholesaling, services,

and retailing SMEs with 5 or fewer employees). 2. Value added = Net operating profit + Personnel costs (officers’ pay, employees’ pay, employee benefits) + Interest

expenses and discount charges + 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 and discount charges / (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) (average at beginning and end of

period) / (Ordinary profit × 50% + depreciation costs - officers’ bonus - dividends) 3. Figures for sales, total assets, value added (personnel costs, interest expenses), labor productivity and capital-

labor ratio 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 population medians. 5. The debt redemption period (in years) for enterprises whose denominator is negative is treated as 10,000 years.


339

Table 18 Business conditions DI by prefecture(1) All industries Change from previous quarter (seasonally adjusted)

Prefecture2006 2007 2008 2009 Change from

previous quarterJul.-Sep. Oct.-Dec. Jan.-Mar. Apr.-Jun. Jul.-Sep. Oct.-Dec. Jan.-Mar. Apr.-Jun. Jul.-Sep. Oct.-Dec. Jan.-Mar.National -20.4 -20.6 -21.4 -23.5 -24.0 -26.4 -29.8 -32.5 -35.9 -42.0 -50.0 -8.0

Hokkaido -20.7 -22.1 -21.8 -25.6 -25.9 -28.3 -32.0 -31.8 -35.2 -40.5 -39.1 1.4

South/Central Hokkaido -17.6 -21.4 -19.3 -26.1 -26.5 -27.4 -33.9 -32.6 -35.4 -42.5 -40.3 2.2

North Hokkaido/Okhotsk -28.7 -24.5 -27.4 -20.6 -20.9 -27.1 -26.3 -35.9 -38.1 -38.2 -41.9 -3.7

Tokachi, Kushiro, Nemuro -24.6 -23.7 -23.3 -28.2 -28.8 -33.7 -27.9 -26.0 -32.1 -35.7 -35.6 0.1

Tohoku -22.8 -24.4 -25.1 -26.4 -26.9 -30.6 -33.4 -36.2 -40.3 -42.7 -52.5 -9.8

Aomori -33.3 -31.6 -34.8 -35.4 -36.5 -35.7 -35.3 -42.0 -43.4 -50.0 -51.7 -1.7

Iwate -16.5 -16.7 -19.7 -22.9 -21.5 -27.2 -30.2 -30.0 -39.6 -38.2 -47.2 -9.0

Miyagi -18.2 -21.1 -22.6 -24.6 -31.8 -33.1 -37.5 -43.4 -41.5 -45.9 -55.7 -9.8

Akita -17.8 -25.5 -25.7 -23.9 -23.2 -29.0 -32.6 -37.2 -40.5 -41.2 -50.8 -9.6

Yamagata -19.6 -19.3 -21.7 -25.8 -20.6 -28.4 -32.5 -29.9 -38.5 -41.6 -52.0 -10.4

Fukushima -29.5 -31.1 -26.4 -27.3 -28.0 -31.1 -32.5 -36.9 -38.1 -40.1 -56.0 -15.9

Kanto -17.0 -16.9 -17.7 -21.0 -20.1 -23.7 -27.3 -31.1 -33.6 -41.6 -51.0 -9.4

Ibaraki -17.7 -14.9 -18.7 -19.4 -18.2 -31.2 -27.2 -37.0 -36.5 -42.2 -45.7 -3.5

Tochigi -15.4 -13.1 -15.8 -20.1 -19.8 -19.2 -26.9 -24.5 -38.4 -37.1 -56.2 -19.1

Gunma -24.6 -21.0 -24.6 -23.6 -21.1 -25.7 -25.3 -26.3 -27.7 -34.6 -51.4 -16.8

Saitama -15.2 -15.7 -18.3 -16.5 -17.4 -20.2 -26.2 -20.8 -32.7 -42.1 -47.3 -5.2

Chiba -11.4 -13.5 -13.0 -17.5 -14.3 -16.7 -23.0 -23.8 -27.1 -33.7 -42.0 -8.3

Tokyo -14.9 -14.3 -12.6 -16.7 -16.0 -19.8 -25.4 -30.9 -34.5 -42.0 -49.8 -7.8

Kanagawa -13.0 -19.6 -14.5 -20.1 -20.4 -17.0 -27.5 -30.3 -33.8 -45.8 -55.2 -9.4

Niigata -19.7 -22.5 -22.5 -28.6 -30.5 -28.9 -33.3 -37.9 -34.5 -41.2 -53.7 -12.5

Yamanashi -15.8 -20.2 -28.9 -29.6 -27.8 -34.9 -37.6 -33.8 -39.9 -41.7 -51.8 -10.1

Nagano -20.4 -16.6 -16.2 -20.8 -18.1 -27.2 -29.7 -39.6 -39.9 -47.0 -51.6 -4.6

Shizuoka -18.6 -12.4 -14.0 -15.3 -16.2 -22.1 -20.1 -28.5 -28.6 -42.9 -51.0 -8.1

Chubu -18.6 -20.2 -21.6 -20.9 -22.4 -24.2 -29.1 -31.1 -35.8 -44.1 -53.0 -8.9

Toyama -14.9 -17.6 -20.0 -21.6 -25.2 -28.4 -29.8 -31.8 -29.4 -45.4 -49.9 -4.5

Ishikawa -20.3 -18.0 -33.7 -17.3 -19.4 -22.9 -25.7 -30.7 -40.9 -44.2 -55.3 -11.1

Gifu -25.0 -19.8 -24.5 -22.6 -19.9 -28.4 -31.7 -35.1 -37.4 -42.8 -53.2 -10.4

Aichi -11.4 -20.2 -19.0 -16.4 -21.3 -19.3 -24.6 -26.2 -33.4 -44.0 -51.5 -7.5

Mie -24.1 -22.4 -17.3 -27.1 -25.7 -22.4 -36.3 -33.6 -37.5 -42.0 -56.0 -14.0

Kinki -21.0 -18.6 -21.4 -21.7 -23.4 -25.1 -28.5 -30.6 -35.1 -42.0 -51.6 -9.6

Fukui -19.8 -20.6 -21.4 -16.6 -16.3 -24.2 -31.2 -27.7 -34.7 -41.9 -51.5 -9.6

Shiga -20.7 -21.6 -26.8 -26.5 -27.8 -25.5 -32.4 -30.0 -35.4 -47.0 -57.9 -10.9

Kyoto -26.7 -24.0 -31.1 -31.8 -27.1 -34.2 -37.6 -40.4 -44.9 -48.0 -54.4 -6.4

Osaka -22.0 -15.2 -20.9 -18.8 -21.4 -22.9 -23.5 -27.5 -31.7 -41.6 -51.7 -10.1

Hyogo -15.3 -15.0 -16.7 -19.2 -23.3 -21.6 -27.7 -33.0 -33.2 -36.4 -52.4 -16.0

Nara -19.6 -20.5 -22.5 -25.7 -27.2 -24.3 -29.1 -30.5 -36.3 -39.8 -44.4 -4.6

Wakayama -22.2 -17.7 -17.1 -20.5 -23.1 -24.2 -30.8 -31.2 -36.5 -40.5 -50.4 -9.9

Chugoku -22.4 -25.2 -24.6 -24.5 -26.8 -28.1 -34.1 -34.9 -35.8 -42.7 -52.1 -9.4

Tottori -26.7 -29.1 -34.2 -23.2 -31.7 -31.1 -40.6 -38.3 -35.6 -42.5 -51.9 -9.4

Shimane -25.6 -28.2 -20.9 -18.6 -27.6 -24.1 -34.6 -34.4 -36.5 -42.2 -45.1 -2.9

Okayama -16.4 -21.5 -19.9 -34.5 -26.4 -26.3 -32.8 -41.3 -43.8 -47.7 -54.0 -6.3

Hiroshima -19.9 -22.1 -21.5 -23.6 -22.2 -20.5 -27.9 -30.2 -32.0 -33.3 -46.3 -13.0

Yamaguchi -24.2 -26.3 -26.6 -24.0 -28.5 -36.6 -34.3 -34.8 -34.3 -46.2 -59.0 -12.8

Shikoku -25.2 -26.0 -26.2 -30.1 -29.2 -29.4 -33.4 -35.1 -36.5 -41.7 -46.1 -4.4

Tokushima -23.5 -22.0 -25.4 -26.3 -29.4 -25.3 -31.8 -33.5 -34.7 -45.4 -49.8 -4.4

Kagawa -21.3 -22.2 -23.2 -20.9 -24.5 -26.5 -29.2 -33.3 -33.6 -40.3 -41.0 -0.7

Ehime -29.1 -30.1 -26.4 -36.0 -27.9 -28.8 -35.5 -38.1 -39.8 -44.1 -51.4 -7.3

Kochi -25.8 -28.0 -35.2 -35.8 -35.5 -38.5 -41.8 -33.7 -36.1 -32.7 -41.5 -8.8

Kyushu/Okinawa -20.8 -20.8 -22.6 -24.0 -25.2 -29.0 -30.6 -32.6 -36.2 -40.0 -46.5 -6.5

Fukuoka -17.4 -17.9 -20.9 -22.5 -24.0 -36.6 -34.1 -37.9 -36.7 -42.2 -51.4 -9.2

Saga -28.1 -23.2 -24.1 -24.3 -23.3 -30.2 -34.0 -33.7 -40.7 -40.8 -51.8 -11.0

Nagasaki -28.8 -27.1 -31.5 -35.0 -31.9 -29.1 -33.1 -36.4 -40.9 -44.3 -53.1 -8.8

Kumamoto -19.6 -20.2 -23.9 -18.6 -19.8 -23.9 -29.7 -35.0 -36.4 -41.4 -45.8 -4.4

Oita -22.6 -25.3 -31.0 -31.2 -31.5 -34.0 -38.6 -36.8 -39.2 -41.3 -47.3 -6.0

Miyazaki -13.0 -19.2 -24.8 -29.5 -33.2 -31.7 -34.9 -27.7 -39.6 -45.5 -50.5 -5.0

Kagoshima -24.0 -23.2 -16.1 -22.7 -25.9 -28.0 -29.7 -32.8 -33.7 -39.5 -41.6 -2.1

Okinawa -10.1 -7.6 -7.1 -7.9 -10.5 -8.9 -5.9 -12.5 -20.4 -22.7 -26.7 -4.0


340

(2) Manufacturing Change from previous quarter (seasonally adjusted)



Hokkaido -25.7 -14.9 -20.2 -23.2 -21.3 -21.5 -30.1 -24.6 -31.4 -40.1 -31.8 8.3


North Hokkaido/Okhotsk -34.0 -21.5 -29.1 -24.9 -12.2 -16.5 -23.6 -24.8 -34.8 -41.1 -38.1 3.0

Tokachi, Kushiro, Nemuro -40.1 -16.7 -16.9 -34.7 -25.6 -34.5 -29.8 -14.2 -36.1 -62.5 -39.1 23.4

Tohoku -13.5 -16.3 -14.0 -20.2 -17.0 -21.0 -26.4 -26.2 -34.1 -38.1 -50.8 -12.7

Aomori -24.7 -18.5 -27.2 -21.3 -25.2 -29.7 -26.9 -24.6 -30.6 -41.8 -34.9 6.9

Iwate -3.9 -8.4 -8.7 -17.8 -14.3 -31.0 -19.5 -19.5 -37.1 -35.3 -47.0 -11.7

Miyagi -7.5 -16.3 -21.4 -27.2 -30.4 -30.9 -28.6 -37.9 -36.4 -30.3 -56.5 -26.2

Akita 1.0 -20.2 1.4 -13.4 -14.2 -13.1 -17.7 -21.2 -28.8 -28.3 -42.7 -14.4

Yamagata -16.2 -7.5 -10.4 -19.9 -4.4 -13.1 -30.5 -27.5 -34.8 -49.2 -60.0 -10.8

Fukushima -28.2 -29.7 -18.7 -24.1 -17.8 -18.4 -31.2 -24.0 -31.5 -48.6 -56.5 -7.9

Kanto -13.0 -11.9 -12.3 -16.2 -15.5 -18.9 -24.2 -28.6 -34.4 -46.9 -65.0 -18.1

Ibaraki -8.2 -5.2 -6.0 -16.1 -13.3 -27.8 -33.6 -45.5 -43.8 -46.1 -62.8 -16.7

Tochigi -0.6 -2.9 -8.0 -9.2 -7.3 -8.1 -14.1 -14.4 -30.6 -43.1 -59.7 -16.6

Gunma -19.3 -15.5 -17.2 -11.0 -12.9 -17.1 -20.8 -18.8 -26.0 -34.9 -60.0 -25.1

Saitama -9.5 -17.0 -20.8 -15.6 -20.7 -17.2 -18.7 -20.7 -35.8 -43.4 -66.6 -23.2

Chiba -6.7 -5.1 -4.4 -10.8 -17.3 -15.6 -26.1 -21.2 -27.1 -31.7 -51.5 -19.8

Tokyo -18.4 -10.8 -14.5 -21.4 -10.6 -19.5 -24.5 -32.7 -37.5 -48.0 -66.4 -18.4

Kanagawa -8.2 -11.6 -10.0 -11.0 -11.0 -5.3 -24.4 -30.3 -30.9 -55.0 -75.4 -20.4

Niigata -20.7 -23.5 -18.5 -24.6 -24.2 -23.1 -32.1 -35.3 -36.6 -46.2 -67.7 -21.5

Yamanashi -7.1 -2.2 -16.4 -21.7 -20.9 -28.4 -21.5 -25.6 -37.5 -48.9 -57.6 -8.7

Nagano -15.3 -13.6 -7.7 -3.7 -15.3 -17.2 -20.3 -39.1 -41.0 -61.8 -70.8 -9.0

Shizuoka -14.6 -4.7 -5.0 -19.9 -15.3 -24.0 -23.5 -20.9 -31.7 -44.1 -63.6 -19.5

Chubu -9.9 -9.6 -11.2 -12.7 -19.6 -12.6 -26.3 -23.0 -29.2 -44.2 -57.5 -13.3

Toyama -2.1 -11.6 -9.8 -18.1 -24.8 -16.4 -27.5 -23.7 -19.8 -45.8 -56.5 -10.7

Ishikawa -11.3 -6.2 -11.6 5.5 -12.8 1.8 -14.4 -21.5 -31.2 -49.8 -48.5 1.3

Gifu -16.4 -10.3 -15.2 -16.3 -13.8 -21.8 -24.7 -22.6 -32.7 -40.6 -49.5 -8.9

Aichi -9.0 -10.6 -8.9 -9.7 -21.6 -9.0 -26.3 -23.0 -36.9 -49.5 -62.6 -13.1

Mie -10.7 -12.6 -8.5 -17.9 -17.7 -17.4 -27.4 -23.2 -22.4 -35.8 -58.6 -22.8

Kinki -13.8 -8.2 -15.3 -11.5 -15.1 -16.9 -22.5 -25.6 -32.5 -42.2 -58.7 -16.5

Fukui -11.0 -14.5 -19.1 -0.2 -9.0 -21.7 -22.1 -26.5 -39.2 -56.9 -70.1 -13.2

Shiga -17.1 -18.6 -19.5 -20.2 -12.9 -6.9 -19.9 -19.9 -32.0 -44.1 -72.3 -28.2

Kyoto -24.1 -22.8 -29.7 -17.5 -22.8 -24.8 -29.7 -38.4 -46.3 -42.8 -60.3 -17.5

Osaka -12.9 -5.8 -12.6 -12.8 -16.2 -16.7 -15.4 -20.0 -26.8 -48.0 -60.4 -12.4

Hyogo -8.9 -2.2 -9.7 -6.1 -10.9 -15.7 -23.2 -26.2 -26.5 -31.1 -59.6 -28.5

Nara -12.1 -6.1 -15.3 -18.0 -20.7 -16.5 -25.8 -24.3 -35.1 -38.0 -43.7 -5.7

Wakayama -16.7 -1.8 -8.5 -4.9 -9.1 -20.2 -32.2 -32.1 -37.9 -46.4 -46.4 0.0

Chugoku -10.7 -13.6 -13.9 -17.0 -20.7 -22.2 -25.5 -27.9 -28.5 -41.5 -54.5 -13.0

Tottori -18.4 -12.6 -20.3 -15.0 -27.5 -30.1 -27.5 -25.7 -29.9 -37.3 -53.4 -16.1

Shimane -8.7 -24.1 -8.1 -17.9 -29.5 -15.5 -32.9 -34.2 -36.8 -47.8 -46.7 1.1

Okayama -7.9 -12.5 -17.4 -24.7 -12.2 -19.8 -21.4 -30.7 -36.7 -48.5 -60.9 -12.4

Hiroshima -4.6 -6.9 -6.5 -12.4 -14.4 -10.7 -23.4 -12.5 -16.3 -24.5 -49.0 -24.5

Yamaguchi -15.7 -11.1 -22.5 -14.4 -25.0 -31.7 -31.0 -36.3 -27.0 -44.5 -60.5 -16.0

Shikoku -20.4 -13.3 -24.8 -20.9 -23.9 -24.8 -27.5 -28.6 -31.4 -39.5 -44.6 -5.1

Tokushima -17.7 -11.4 -25.4 -14.8 -25.1 -24.2 -31.0 -24.6 -30.6 -50.7 -51.0 -0.3

Kagawa -12.6 -5.2 -12.3 -11.0 -17.7 -16.7 -12.6 -20.4 -20.0 -30.2 -27.8 2.4

Ehime -29.6 -26.4 -25.7 -29.8 -25.5 -29.0 -26.4 -33.2 -30.9 -41.9 -50.5 -8.6

Kochi -19.9 -17.9 -37.0 -28.4 -27.4 -43.1 -40.3 -38.8 -51.6 -44.6 -42.6 2.0

Kyushu/Okinawa -16.8 -12.2 -17.8 -20.2 -18.2 -28.1 -28.5 -30.2 -35.6 -37.4 -43.7 -6.3

Fukuoka -12.3 -9.3 -12.2 -20.4 -10.8 -50.0 -27.1 -37.9 -35.3 -44.0 -52.2 -8.2

Saga -17.0 -12.7 -15.5 -17.3 -16.5 -23.5 -28.9 -28.0 -37.3 -42.8 -61.8 -19.0

Nagasaki -26.9 -23.3 -31.3 -32.8 -17.9 -30.1 -38.0 -40.8 -43.5 -38.4 -45.2 -6.8

Kumamoto -16.3 -6.5 -23.8 -14.3 -15.4 -28.4 -45.0 -41.2 -44.6 -41.9 -41.9 0.0

Oita -22.0 -19.6 -32.8 -23.9 -25.9 -38.1 -43.9 -34.4 -39.7 -44.1 -45.3 -1.2

Miyazaki -14.0 -9.7 -10.3 -16.0 -16.4 -27.0 -33.1 -29.5 -42.4 -37.5 -40.9 -3.4

Kagoshima -21.4 -18.4 -16.5 -18.7 -27.5 -18.4 -11.0 -25.8 -21.3 -38.8 -32.8 6.0

Okinawa 0.5 -6.3 1.9 -15.6 -14.0 -0.8 3.2 2.6 -23.2 -9.0 -21.8 -12.8



341

(3) Non-manufacturing Change from previous quarter (seasonally adjusted)



Hokkaido -20.2 -24.2 -22.1 -25.3 -28.0 -30.1 -32.3 -33.0 -36.9 -40.5 -40.7 -0.2


North Hokkaido/Okhotsk -26.6 -24.9 -26.9 -20.1 -23.6 -29.8 -27.3 -39.6 -39.2 -36.8 -43.5 -6.7

Tokachi, Kushiro, Nemuro -21.5 -24.3 -25.2 -27.4 -29.9 -32.8 -27.7 -28.1 -31.8 -30.2 -34.6 -4.4

Tohoku -26.4 -27.5 -29.2 -28.8 -30.5 -33.9 -35.7 -40.1 -42.3 -43.9 -52.9 -9.0

Aomori -37.1 -35.8 -37.3 -40.5 -40.8 -36.6 -38.2 -47.1 -46.7 -51.4 -56.2 -4.8

Iwate -21.7 -20.9 -22.9 -25.0 -23.6 -26.3 -32.9 -33.6 -39.9 -40.0 -46.1 -6.1

Miyagi -22.2 -22.5 -22.7 -23.9 -32.7 -33.5 -40.3 -45.1 -43.5 -50.2 -55.5 -5.3

Akita -24.5 -28.1 -37.6 -27.0 -25.9 -35.6 -39.3 -41.9 -43.4 -46.6 -53.0 -6.4

Yamagata -22.1 -23.7 -26.9 -28.5 -28.5 -34.2 -33.1 -30.9 -40.8 -37.8 -48.3 -10.5

Fukushima -30.2 -32.0 -29.0 -28.1 -31.5 -35.5 -32.7 -40.9 -40.4 -37.7 -55.6 -17.9

Kanto -18.7 -18.9 -19.8 -23.0 -21.7 -25.5 -28.4 -32.3 -33.4 -39.8 -45.8 -6.0

Ibaraki -21.8 -19.3 -24.8 -21.3 -20.1 -32.7 -24.0 -33.0 -32.9 -41.1 -39.0 2.1

Tochigi -22.0 -18.0 -19.1 -25.2 -25.2 -24.2 -32.6 -29.6 -41.5 -33.9 -54.7 -20.8

Gunma -25.8 -24.3 -27.7 -29.8 -23.9 -30.6 -27.3 -29.8 -28.5 -35.2 -47.6 -12.4

Saitama -17.1 -14.9 -17.1 -18.6 -14.7 -21.2 -29.1 -22.6 -29.8 -40.8 -41.0 -0.2

Chiba -12.5 -15.9 -15.0 -19.9 -13.3 -17.0 -21.9 -25.2 -26.8 -34.2 -40.1 -5.9

Tokyo -13.7 -15.2 -11.6 -16.0 -17.6 -19.7 -25.2 -30.8 -33.6 -39.5 -44.7 -5.2

Kanagawa -14.3 -22.6 -15.9 -23.2 -23.3 -21.4 -28.4 -30.3 -33.7 -44.5 -49.9 -5.4

Niigata -19.6 -22.0 -24.3 -30.5 -33.8 -31.3 -33.5 -39.0 -33.9 -38.9 -47.4 -8.5

Yamanashi -20.5 -27.4 -33.6 -32.9 -31.6 -36.7 -43.5 -36.8 -41.9 -37.6 -50.2 -12.6

Nagano -20.9 -18.4 -18.7 -27.1 -17.6 -30.7 -31.8 -40.7 -40.1 -43.4 -45.7 -2.3

Shizuoka -21.3 -16.6 -18.9 -13.1 -17.0 -20.7 -17.6 -34.0 -25.8 -42.0 -44.3 -2.3

Chubu -22.7 -24.1 -25.7 -24.0 -24.0 -27.9 -30.2 -34.0 -38.3 -43.1 -51.8 -8.7

Toyama -20.5 -20.2 -24.4 -23.1 -25.5 -33.5 -30.8 -35.2 -33.5 -43.7 -46.8 -3.1

Ishikawa -24.6 -23.2 -41.3 -22.2 -21.4 -27.8 -27.5 -33.9 -43.2 -43.6 -54.9 -11.3

Gifu -28.1 -23.1 -27.0 -24.9 -22.1 -30.7 -33.2 -39.4 -39.0 -43.6 -54.5 -10.9

Aichi -13.2 -23.7 -24.5 -19.4 -21.8 -22.7 -24.4 -27.2 -33.1 -40.3 -47.2 -6.9

Mie -29.1 -26.8 -20.8 -30.6 -28.4 -24.9 -39.6 -37.1 -42.5 -44.4 -54.7 -10.3

Kinki -24.5 -23.5 -24.6 -26.5 -27.3 -28.6 -31.3 -33.0 -36.3 -41.1 -48.7 -7.6

Fukui -23.9 -23.4 -23.1 -23.5 -19.1 -24.5 -35.9 -27.3 -32.7 -35.2 -45.8 -10.6

Shiga -22.0 -22.2 -30.7 -29.3 -34.2 -34.2 -38.3 -34.9 -36.9 -47.4 -52.7 -5.3

Kyoto -26.7 -25.2 -31.9 -38.8 -27.8 -39.1 -41.3 -41.9 -42.7 -50.6 -52.9 -2.3

Osaka -26.8 -20.2 -25.4 -21.8 -24.3 -26.0 -27.3 -30.8 -33.9 -38.6 -47.7 -9.1

Hyogo -19.2 -22.3 -20.6 -26.2 -29.6 -24.4 -29.9 -36.5 -36.3 -38.0 -48.4 -10.4

Nara -22.4 -27.2 -25.3 -28.0 -29.7 -28.9 -30.2 -32.6 -36.5 -41.7 -44.5 -2.8

Wakayama -25.1 -24.4 -20.4 -27.5 -29.2 -25.7 -29.8 -30.9 -36.0 -38.1 -52.0 -13.9

Chugoku -27.0 -29.7 -28.3 -27.6 -29.1 -30.3 -36.3 -37.9 -38.6 -42.7 -51.0 -8.3

Tottori -30.9 -36.1 -40.0 -26.1 -34.4 -31.1 -45.2 -42.0 -37.6 -44.1 -51.3 -7.2

Shimane -31.2 -31.0 -25.5 -19.7 -25.9 -27.0 -34.9 -35.5 -35.8 -41.2 -45.3 -4.1

Okayama -20.2 -26.7 -21.5 -38.5 -33.0 -30.9 -38.5 -45.1 -46.6 -48.2 -50.8 -2.6

Hiroshima -26.4 -28.1 -27.5 -28.3 -25.7 -24.1 -29.4 -36.6 -38.3 -36.4 -45.4 -9.0

Yamaguchi -27.5 -29.8 -28.4 -26.6 -30.0 -37.2 -36.0 -34.4 -36.6 -45.9 -58.4 -12.5

Shikoku -26.9 -30.1 -28.3 -32.8 -30.9 -30.1 -37.2 -36.9 -38.3 -41.3 -47.6 -6.3

Tokushima -26.1 -26.1 -26.1 -31.7 -31.4 -24.4 -33.0 -37.6 -36.4 -42.0 -50.7 -8.7

Kagawa -24.9 -29.6 -27.2 -25.3 -26.9 -30.2 -34.9 -38.4 -38.7 -43.6 -45.7 -2.1

Ehime -29.3 -32.8 -24.8 -38.2 -29.5 -29.6 -36.9 -40.0 -43.3 -45.5 -50.0 -4.5

Kochi -27.6 -31.6 -34.3 -37.3 -38.0 -37.9 -41.9 -31.4 -31.8 -29.5 -40.7 -11.2

Kyushu/Okinawa -22.3 -23.5 -24.6 -25.5 -27.4 -28.8 -31.7 -33.4 -36.1 -40.6 -47.3 -6.7

Fukuoka -18.4 -20.9 -23.4 -23.9 -27.0 -32.7 -36.1 -38.7 -36.6 -42.2 -50.9 -8.7

Saga -32.2 -26.3 -27.0 -26.6 -25.7 -32.0 -35.8 -35.4 -42.0 -39.9 -48.8 -8.9

Nagasaki -29.6 -28.1 -31.8 -35.7 -36.6 -28.2 -31.5 -35.0 -40.2 -45.4 -55.1 -9.7

Kumamoto -21.7 -24.1 -24.1 -20.8 -21.8 -20.4 -24.5 -33.8 -34.2 -40.3 -47.6 -7.3

Oita -21.8 -28.1 -30.8 -33.2 -32.3 -33.6 -37.3 -37.3 -38.2 -41.0 -48.4 -7.4

Miyazaki -13.7 -22.9 -29.9 -32.9 -39.9 -33.2 -35.7 -27.3 -37.8 -47.7 -52.3 -4.6

Kagoshima -24.5 -26.0 -18.0 -21.8 -24.6 -31.3 -39.0 -33.2 -37.2 -39.0 -46.2 -7.2

Okinawa -14.0 -8.4 -9.3 -7.1 -9.4 -11.2 -7.7 -17.9 -20.1 -25.7 -27.1 -1.4


342

Chapter 1Fig. 1-1-1 Trends in real economic growth rates by country/region ............................................................ 2Fig. 1-1-2 Trends in U.S. housing market prices .......................................................................................... 3Fig. 1-1-3 Stock market trends in major countries ....................................................................................... 3Fig. 1-1-4 Global CDS premiums (Spreads above five-year government bonds) ........................................ 4Fig. 1-1-5 Foreign exchange rate trends ....................................................................................................... 4Fig. 1-1-6 GDP growth rate and breakdown of contributions to growth ...................................................... 5Fig. 1-1-7 Trade balance trends .................................................................................................................... 6Fig. 1-1-8 Automobile (four-wheel vehicles and passenger cars) production and export trends ............... 6Fig. 1-1-9 Index of Industrial Production trends ........................................................................................... 7Fig. 1-1-10 Active opening rate and unemployment rate ............................................................................... 7Fig. 1-1-11 Contract terminations for non-regular workers ............................................................................ 8Fig. 1-1-12 Crude oil price trends ................................................................................................................... 9Fig. 1-1-13 Metal price trends......................................................................................................................... 9Fig. 1-1-14 Trends in prices being passed on for SMEs ............................................................................. 10Fig. 1-2-1 Trends in the Business conditions DI of enterprises in Japan ................................................... 11Fig. 1-2-2 Trends in the Business conditions DI of SMEs in Japan ........................................................... 11Fig. 1-2-3 Business sentiment among SMEs by industry .......................................................................... 12Fig. 1-2-4 Trends in SME Business conditions DI by region ...................................................................... 13Fig. 1-2-5 Trends in Manufacturing Production Indices by Size of Enterprises ......................................... 13Fig. 1-2-6 [1] Sales trends ........................................................................................................................... 14Fig. 1-2-6 [2] Ordinary profit trends ............................................................................................................. 14Fig. 1-2-7 [1] Breakdown of ordinary profit composition (year-on-year contribution) ................................ 15Fig. 1-2-7 [2] Ordinary profit to sales ratio trends by business size ........................................................... 15Fig. 1-2-8 [1] Trends in SME financing DI .................................................................................................... 16Fig. 1-2-8 [2] Trends in the difficulty in borrowing DI of SMEs .................................................................... 17Fig. 1-2-9 SME bankruptcy trends .............................................................................................................. 17Fig. 1-2-10 Capital expenditure trends ......................................................................................................... 18Fig. 1-2-11 Trends in the sense of overcapacity and insufficiency of employment ..................................... 19Fig. 1-3-1 Trends in the Business conditions DI of SME manufacturers based on

involvement in exporting ............................................................................................................ 20Fig. 1-3-2 Trends in Business conditions DI of SME manufacturers based on

involvement in subcontracted work ........................................................................................... 21Fig. 1-3-3 Impact of overseas economic trends on business results through transactions

with export companies (SME manufacturers’ outlook for approximately the next 3 years) ..... 21Fig. 1-3-4 [1] Orders received from export companies (transaction volume) ............................................. 22Fig. 1-3-4 [2] Transaction unit prices with export companies ..................................................................... 22Fig. 1-3-5 Ratio of direct/indirect export-related production out of total manufacturing

industry production (by enterprise size) ..................................................................................... 23Fig. 1-3-6 Impact of the appreciation of the yen against major currencies (by industry) .......................... 23Fig. 1-3-7 Negative impact of the yen appreciating against major currencies

(summer of 2008 onwards)......................................................................................................... 24Fig. 1-3-8 Positive impact of the yen appreciating against major currencies

(summer of 2008 onwards)......................................................................................................... 24Fig. 1-3-9 Trends in SME loan balance by financial institutions ................................................................. 25Fig. 1-3-10 [1] Changes in SME borrowing ................................................................................................... 25Fig. 1-3-10 [2] Changes in SME financing demand and reasons

(from the financial institutions’ perspective) .......................................................................... 26Fig. 1-3-11 Trend in the repayment period of interest-bearing debt and breakdown of contributions ....... 27Fig. 1-3-12 Changes in lending attitudes of financial institutions (compared to one year prior) ................. 27Fig. 1-3-13 How the lending attitudes of financial institutions have changed (SMEs’ views) ...................... 28Fig. 1-3-14 Reasons for the changes in lending attitude of financial institutions (SMEs’ view) .................. 28Fig. 1-3-15 Relation between SME business results and changes in the lending attitude

for new loans by financial institutions (SMEs’ view) .................................................................. 29

Index of figures

Index of figures

343

Fig. 1-3-16 Trend in non-performing loan ratio ............................................................................................ 29Fig. 1-3-17 Countermeasures against the change in lending attitude of financial institutions .................... 30Fig. 1-3-18 Implementation status of financing-related measures for SMEs and small enterprises ........... 31Fig. 1-3-19 Composition of industries using the emergency guarantee program

(based on number of acceptances made by the end of January) ............................................. 31Fig. 1-3-20 Ratio of borrowing companies which have guarantees by Credit Guarantee Corporations ..... 32Fig. 1-3-21 Impact of crude oil and raw material price hikes on earnings ................................................... 33Fig. 1-3-22 To what extent the price hikes of crude oil and raw material are passed

on to the product prices ............................................................................................................. 33Fig. 1-3-23 Initiatives taken by SMEs on energy saving ............................................................................... 34Fig. 1-3-24 Trend of energy input ratio ......................................................................................................... 35Fig. 1-3-25 Trends in the ratio of loss-making enterprises ........................................................................... 36Fig. 1-3-26 Short term business outlook of SMEs (1-2 years ahead) .......................................................... 36Fig. 1-3-27 The relation between business results and management policies ............................................ 37Fig. 1-3-28 Changes in management strategy and the ordinary profit ratio situation ................................. 38

Chapter 2Fig. 2-1-1 The economic cycle, and research and development activity

(SME manufacturers) .................................................................................................................. 40Fig. 2-1-2 Trends in the ratio of research and development costs to sales and operating margins

for SME manufacturers .............................................................................................................. 41Fig. 2-1-3 The proportion of sales made up of newly developed products and changes in sales ............ 42Fig. 2-1-4 Implementation status of specific efforts aimed at innovation .................................................. 44Fig. 2-1-5 Implementation status of research and development in companies

carrying out activities aimed for innovation ............................................................................... 46Fig. 2-1-6 Acquisition rate of patent rights and model utility rights ........................................................... 47Fig. 2-1-7 The relationship between niche markets and enterprises that lead innovation ........................ 47Fig. 2-1-8 Relative strengths and weaknesses of SMEs based on self-evaluation ................................... 49Fig. 2-1-9 Distribution of ratio of ordinary profits to sales by company scale ........................................... 50Fig. 2-1-10 Challenges in the realization of innovation ................................................................................. 52Fig. 2-1-11 Changes in value added by SMEs ............................................................................................. 53Fig. 2-1-12 Growth rate of value added by SMEs and the contribution of capital, labor and TFP .............. 54Fig. 2-1-13 Situation of the development and sale of products and services

which give consideration to the environment by SMEs ............................................................. 54Fig. 2-1-14 Positioning of SMEs in the biotechnology industry ................................................................... 57Fig. 2-1-15 Changes in the business structure of the software development industry ............................... 59Fig. 2-1-16 Changes in sales of software developers by company scale .................................................... 59Fig. 2-1-17 Percentage of SMEs engaged in research and development

for new products and technologies ........................................................................................... 60Fig. 2-1-18 Ratio of implementation of research and development by company scale .............................. 61Fig. 2-1-19 R&D expenditures of large enterprises and SMEs .................................................................... 62Fig. 2-1-20 R&D expenditures to sales ......................................................................................................... 62Fig. 2-1-21 Long-term changes in R&D expenditures of SMEs and large enterprises

(in manufacturing) ....................................................................................................................... 62Fig. 2-1-22 Changes in the ratio of R&D expenditures to GDP by country ................................................. 63Fig. 2-1-23 Ratio of R&D expenditures to sales by employee size in Japan and the U.S.

(in manufacturing) ....................................................................................................................... 64Fig. 2-1-24 International comparison of entrepreneurial activity ................................................................. 65Fig. 2-1-25 Differences in R&D activities by market environment ................................................................ 65Fig. 2-1-26 Differences in R&D activities by business strategy ................................................................... 66Fig. 2-1-27 Activities carried out to engage in R&D ..................................................................................... 67Fig. 2-1-28 Activities of SMEs for R&D that led to the realization of innovation .......................................... 67Fig. 2-1-29 Situation of external collaboration in R&D for SMEs ................................................................. 68Fig. 2-1-30 Situation of external resource utilization in R&D for SMEs ........................................................ 68Fig. 2-1-31 Challenges in engaging in R&D .................................................................................................. 70Fig. 2-2-1 Issues that are important for sources of ideas and concepts ................................................... 71Fig. 2-2-2 Important customer attributes and characteristics for grasping customer needs .................... 72

344

Fig. 2-2-3 Important markets for grasping customer needs ...................................................................... 72Fig. 2-2-4 Methods used to gather information in order to grasp

“customer needs” and “consumer needs” ................................................................................ 73Fig. 2-2-5 The number of customers for SMEs compared to five years ago

(by business performance) ......................................................................................................... 73Fig. 2-2-6 Geography distance of SMEs’ newly acquired customers (by business performance) ........... 74Fig. 2-2-7 Integration of manufacturing and services ................................................................................ 77Fig. 2-2-8 Integration of manufacturing and services ................................................................................ 78Fig. 2-2-9 Manufacturing by enterprises that have entered the manufacturing field

from non-manufacturing industries (by employee size) ............................................................. 78Fig. 2-2-10 Reasons for entering manufacturing from the services field ..................................................... 79Fig. 2-2-11 Reasons for entering manufacturing from non-manufacturing industries ................................. 80Fig. 2-2-12 Reasons for entering the services industry from the food manufacturing industry .................. 81Fig. 2-2-13 Relationship between electronic commerce and direct exports (by employee size) ................ 82Fig. 2-2-14 Benefits of conducting electronic commerce (by employee size) ............................................. 83Fig. 2-2-15 Relationship between use of electronic commerce and business performance

(by employee size) ...................................................................................................................... 84Fig. 2-2-16 Export destinations by size of enterprise ................................................................................... 85Fig. 2-2-17 Overseas sales situation ............................................................................................................ 86Fig. 2-2-18 Direct export partners ................................................................................................................ 87Fig. 2-2-19 Reasons for engaging in direct exports ..................................................................................... 87Fig. 2-2-20 Problems when engaging in indirect exports ............................................................................ 88Fig. 2-2-21 Reasons for expanding overseas ............................................................................................... 89Fig. 2-2-22 Relationship between overseas expansion and the percentage of operating profit in sales .... 89Fig. 2-2-23 Effects of engaging in direct exports and indirect exports on business performance ............. 90Fig. 2-2-24 Effective policies for the development of overseas markets .................................................... 90Fig. 2-2-25 Effective measures for the development of overseas markets .................................................. 91Fig. 2-2-26 Whether or not hit products have been developed by employee size ....................................... 93Fig. 2-2-27 Time required to produce a hit product ..................................................................................... 94Fig. 2-2-28 Integration of manufacturing and services

(classified by whether hit products have been developed or not) ............................................. 94Fig. 2-2-29 Relationship between hit products and overseas expansion .................................................... 95Fig. 2-2-30 Relationship between hit products and collaborations by employee size ................................ 95Fig. 2-2-31 Relationship between hit products and market types considered to be important

for grasping consumer needs .................................................................................................... 96Fig. 2-2-32 Factors of production differentiation classified by whether hit products have been

developed or not ........................................................................................................................ 97Fig. 2-3-1 Worldwide trends in the number of patent applications ............................................................ 99Fig. 2-3-2 Trends in the number of patent applications submitted to patent offices

in the top five countries .............................................................................................................. 99Fig. 2-3-3 Strategies for patent applications and trade secrets ............................................................... 100Fig. 2-3-4 Percentages of large enterprises and SMEs that treated new inventions

and innovations as corporate secrets and know-how ............................................................. 101Fig. 2-3-5 Reasons for keeping patent applications to a minimum

and protecting intellectual property as trade secrets .............................................................. 102Fig. 2-3-6 Percentage of enterprises that submit patent applications overseas ..................................... 102Fig. 2-3-7 Reasons for not making a request for examination ................................................................. 103Fig. 2-3-8 Intellectual property-related activities of subcontracted and non-subtracted companies ..... 104Fig. 2-3-9 Conditions surrounding the acquisition of patents .................................................................. 105Fig. 2-3-10 Percentage of patents acquired domestically that are being used ......................................... 105Fig. 2-3-11 Utilization of acquired patent rights ......................................................................................... 106Fig. 2-3-12 Relationship with operating profit per employee (by classification of acquired patent) ......... 106Fig. 2-3-13 Technology transactions relating to patents ............................................................................ 107Fig. 2-3-14 Acceptance of and interest in technology transfer .................................................................. 108Fig. 2-3-15 Organizations looked to for technology transfer ...................................................................... 108Fig. 2-3-16 Relationship between engagement in technology transfer and company performance ........ 109Fig. 2-3-17 Issues relating to receiving technology transfer ...................................................................... 109

Index of figures

345

Fig. 2-3-18 Places to which universities and TLO transfer technology ...................................................... 110Fig. 2-3-19 Acquiring intellectual property rights for hit products ............................................................. 112Fig. 2-3-20 Relationship between acquiring patents and hit products ...................................................... 112Fig. 2-3-21 Relationship between acquiring patents and hit products ...................................................... 113Fig. 2-3-22 Effect of acquiring intellectual property rights on hit products (by employee size) ................ 113Fig. 2-3-23 Effect of acquiring intellectual property rights for hit products at certain stages

of development on improving business performance .............................................................. 114Fig. 2-3-24 The timing of acquiring intellectual property rights for hit products and its effects ............... 115Fig. 2-3-25 The timing of acquiring trademark rights for hit products and its effects ............................... 115Fig. 2-3-26 Acquisition of intellectual property rights and the time required to develop a hit product ..... 116Fig. 2-3-27 Issues surrounding intellectual property strategies

(by whether patents have been obtained or not) ..................................................................... 116Fig. 2-4-1 Knowledge and skills that SMEs require of skilled technical personnel ................................. 119Fig. 2-4-2 Sources of technology and innovation ideas (classified by technology and innovation field) ... 120Fig. 2-4-3 Changes in the role played by inspiration in innovation compared to 10 years ago ............... 120Fig. 2-4-4 Areas of work that innovative personnel are in charge of (by fields of technical innovation) .. 121Fig. 2-4-5 Level of satisfaction with number of innovative personnel (by employee size) ....................... 122Fig. 2-4-6 Level of satisfaction with number of innovative personnel

and ratio of ordinary profit to sales .......................................................................................... 122Fig. 2-4-7 Systematic methods used to produce innovative technological ideas

(by fields of technical innovation) ............................................................................................. 123Fig. 2-4-8 Trends in the number of high school students and the ratio

of students studying technical subjects ................................................................................... 124Fig. 2-4-9 Changes in post-graduation paths of high school students .................................................... 125Fig. 2-4-10 Trends in the number of university students and the percentage of science

and engineering students ......................................................................................................... 125Fig. 2-4-11 Changes in post-graduation paths of science and engineering students ............................... 126Fig. 2-4-12 Trends in the active opening rate in each industry .................................................................. 127Fig. 2-4-13 [1] The level of sufficiency of skilled technical personnel by employee size ........................... 127Fig. 2-4-13 [2] The sufficiency of skilled technical personnel by age group and employee size ............... 128Fig. 2-4-14 New graduate recruitment plans and recruitment success over the last five years

of companies with a “shortage,” or “something of a shortage” of skilled technical personnel by employee size ...................................................................................................................... 128

Fig. 2-4-15 Countermeasures of enterprises with a shortage of young skilled technical personnel that had been “unable to recruit ‘new graduates’ as planned” by employee size .................. 129

Fig. 2-4-16 Level of recruitment success of SMEs that had planned to employ new graduates by employee size, and whether they had produced technological innovations ...................... 129

Fig. 2-4-17 Recruitment-related activities carried out by companies that had planned to recruit new employees ......................................................................................................... 130

Fig. 2-4-18 Approaches to develop innovative personnel by level of sufficiency in innovative personnel ... 131Fig. 2-4-19 The level of sufficiency of innovative personnel and the transmission

of technological and technical skills ........................................................................................ 133Fig. 2-4-20 Situation on the transmission of technological and technical skills

by whether technological innovations have been produced or not ......................................... 134Fig. 2-4-21 [1] Challenges of transmitting technological and technical skills ............................................. 134Fig. 2-4-21 [2] Challenges of transmitting technological and technical skills by the level of success

of the transmission of technological and technical skills .................................................... 135Fig. 2-4-22 Specific measures to transmit technological and technical skills ........................................... 136Fig. 2-4-23 [1] Methods to motivate experienced technical and skilled personnel to get involved

in the transmission of technological and technical skills..................................................... 136Fig. 2-4-23 [2] Methods to motivate younger technical and skilled personnel to get involved

in the transmission of technological and technical skills..................................................... 137Fig. 2-5-1 [1] Management challenges by developmental phases (SMEs that conduct R&D) ................ 139Fig. 2-5-1 [2] Management challenges by developmental phases (SMEs that do not conduct R&D) ..... 140Fig. 2-5-2 Situation of fund procurement by development phases

(comparison of SMEs that conduct R&D and those that do not) ............................................ 141Fig. 2-5-3 Measures employed by growth phase SMEs that conduct R&D

when they are unable to secure as much funding as they would like ..................................... 141

346

Fig. 2-5-4 [1] Source of funding by developmental phase (SMEs that conduct R&D) ............................. 142Fig. 2-5-4 [2] Source of funding by developmental phase (SMEs that do not conduct R&D) .................. 142Fig. 2-5-5 [1] Desired funding sources by developmental phase (SMEs that conduct R&D) .................. 143Fig. 2-5-5 [2] Desired funding sources by developmental phase (SMEs that do not conduct R&D) ....... 143Fig. 2-5-6 Trends in the number of investment funds founded and total amount of money invested

by starting year ......................................................................................................................... 145Fig. 2-5-7 Trends in venture capital investment balance in Japan, the United States and the Eurozone ... 146Fig. 2-5-8 Issues perceived by SMEs surrounding receiving venture capital investment

(with/without investment) ......................................................................................................... 147Fig. 2-5-9 Situation of investment recovery methods, and profits and losses of venture capital firms

(performance for fiscal 2007) ................................................................................................... 148Fig. 2-5-10 Reasons for investment recovery bias toward initial public offerings ..................................... 148Fig. 2-5-11 Distribution of stock possession rates by SME representatives and their relatives................ 149Fig. 2-5-12 Percentage of stock possession by company representatives and relatives, and the proportion

of venture capital investment in companies receiving venture capital investment .................... 149Fig. 2-5-13 Participation of venture capital firms in the management process

of SMEs receiving investment .................................................................................................. 150Fig. 2-5-14 Preference for receiving investment from venture capital firms and important

management polices (early growth SMEs) .............................................................................. 151Fig. 2-5-15 [1] Items emphasized by financial institutions and venture capital firms providing

R&D funds to post inauguration to early growth phase SMEs ............................................ 153Fig. 2-5-15 [2] Items emphasized by financial institutions and venture capital firms providing

R&D funds to growth, expansion and stability phase SMEs ............................................... 153Fig. 2-5-16 SMEs’ positive evaluations regarding transactions with financial institutions

and aspects to expect improvement on .................................................................................. 154Fig. 2-5-17 Areas that SMEs would like financial institutions to improve on (with/without R&D) .............. 155Fig. 2-5-18 Changes in assessment abilities of financial institutions compared to 10 years ago

(financial institutions’ viewpoint and SMEs’ viewpoint) ........................................................... 156Fig. 2-5-19 Reasons for assessment abilities of financial institutions not changing or worsening

(financial institutions and SMEs’ viewpoint) ............................................................................. 156Fig. 2-5-20 What financial institutions believe need to be done to improve their assessment abilities .... 157Fig. 2-5-21 Perception of financial institutions regarding the importance of SMEs’ drafting management

policy and business plans and the prompt and appropriate disclosure of information .......... 157Fig.2-5-22 Situation of SMEs’ drafting management policies and business plans, and the prompt

and appropriate disclosure of information ............................................................................... 158

Chapter 3Fig. 3-1-1 Employment surplus DI by type of employment (July and October 2008) .............................. 160Fig. 3-1-2 Current measures against the effects on business activities due to changes

in the economic situation (October 2008) ................................................................................ 160Fig. 3-1-3 Implementation of wage and employment adjustment ............................................................ 161Fig. 3-1-4 Trends in the sense of insufficient employment felt by SMEs ................................................ 162Fig. 3-1-5 Trends in the sense of insufficient employment felt by SMEs by industry type ...................... 163Fig. 3-1-6 Differences in number of active openings and active applications by occupation ................. 163Fig. 3-1-7 Management resources that SMEs consider the most important ........................................... 164Fig. 3-1-8 Terminal education records of permanent employees by employee size

(age 15 – 34, 2007) ................................................................................................................... 165Fig. 3-1-9 Trends in the number of active openings, newly employed persons and filling rates

for high school graduates by employee size ............................................................................ 165Fig. 3-1-10 Trends in the active opening rates for university graduates by employee size ....................... 166Fig. 3-1-11 Trends in the population and population projections by age bracket ..................................... 167Fig. 3-1-12 Trends in the number of employees per enterprise by enterprise scale.................................. 167Fig. 3-1-13 Increase in the number of employees across a period of 10 years (FY1996 – FY2006) ......... 168Fig. 3-1-14 Type of employment in SMEs ................................................................................................... 169Fig. 3-1-15 Distribution of permanent employees across industry types by employee size (2007) .......... 169Fig. 3-1-16 Number of foreign workers by resident status and size of establishment ............................. 170Fig. 3-1-17 Trends in number of working hours for permanent and non-permanent employees

by enterprise scale ................................................................................................................... 173

Index of figures

347

Fig. 3-1-18 Trends in wages for permanent and non-permanent employees by enterprise scale ............. 174Fig. 3-1-19 Trends in wages per hour of work for permanent and non-permanent employees

by enterprise scale .................................................................................................................... 174Fig. 3-1-20 Distribution of wages for permanent employees by enterprise scale (2007) .......................... 175Fig. 3-1-21 Trends in labor share by enterprise scale ................................................................................ 175Fig. 3-1-22 Trends in turnover rates for regular employees (excluding part-time workers)

by enterprise scale ................................................................................................................... 176Fig. 3-1-23 Ratio of new graduates hired as permanent employees by enterprises in the past ten years

still working in those enterprises today .................................................................................... 177Fig. 3-1-24 Intention to continue present job by enterprise scale (2007) ................................................... 178Fig. 3-1-25 Reasons for wanting to change jobs by enterprise scale (2007) ............................................. 178Fig. 3-1-26 Employment path for permanent employees (by enterprise scale) ......................................... 179Fig. 3-1-27 Movement of employment in the past five years ..................................................................... 180Fig. 3-1-28 Movement of employment in the past five years by industry type and enterprise scale ........ 181Fig. 3-1-29 Movement of employment in the past five years by occupation type ..................................... 182Fig. 3-1-30 Current and future situation regarding surplus or insufficiency of personnel

by enterprise scale ................................................................................................................... 183Fig. 3-1-31 Future prospects regarding insufficiency of personnel in SMEs by industry type

(over next three years) .............................................................................................................. 184Fig. 3-1-32 How enterprises are thinking of recruiting or utilizing personnel to make up

for the lack of personnel ........................................................................................................... 184Fig. 3-1-33 Methods enterprises are considering using for recruiting personnel ...................................... 185Fig. 3-1-34 Industry types of previous jobs in which SME employees changed jobs

within the past five years .......................................................................................................... 185Fig. 3-1-35 Intended destination of employment during time as students ................................................ 186Fig. 3-1-36 Reasons for wanting to work in a large enterprise ................................................................... 186Fig. 3-2-1 Necessity of collaboration with large enterprises and SMEs perceived

by educational institutions........................................................................................................ 188Fig. 3-2-2 Situation regarding educational institutions’ interaction with companies ............................... 188Fig. 3-2-3 Changes in educational institutions’ interactions with SMEs .................................................. 189Fig. 3-2-4 Locations of SMEs interacting with educational institutions ................................................... 189Fig. 3-2-5 Effects of interaction with SMEs perceived by educational institutions .................................. 190Fig. 3-2-6 Possible issues expected by educational institutions for interaction with SMEs .................... 190Fig. 3-2-7 Issues for interaction with educational institutions perceived by SMEs ................................. 191Fig. 3-2-8 Prospect of how SMEs and educational institutions would like to interact ............................. 191Fig. 3-2-9 Personnel that educational institutions are trying to produce and that SMEs want ............... 193Fig. 3-2-10 Changes in the implementation of internship programs .......................................................... 193Fig. 3-2-11 Ideal length and actual length of internships ........................................................................... 194Fig. 3-2-12 Types of internship programs envisioned by SMEs ................................................................. 194Fig. 3-2-13 Reasons for participating in an internship program as a student ............................................ 195Fig. 3-2-14 Situation regarding recruitment of interns as employees ........................................................ 195Fig. 3-2-15 Issues perceived by SMEs in implementing internship programs ........................................... 196Fig. 3-2-16 Issues perceived by educational institutions in implementing internship programs ............... 196Fig. 3-3-1 Wage curve of permanent employees ..................................................................................... 198Fig. 3-3-2 Wage curve of the permanent employees according to manufacturing

industry/non-manufacturing industry ...................................................................................... 199Fig. 3-3-3 Wage systems emphasized by enterprises for permanent employees ................................... 199Fig. 3-3-4 Wage systems emphasized by enterprises for permanent employees

(for manufacturing and non-manufacturing industries) ........................................................... 200Fig. 3-3-5 Reasons for emphasizing the seniority-based wage system for permanent employees

in the wage systems of enterprises .......................................................................................... 200Fig. 3-3-6 Influence of wage systems with emphasis on seniority-based wages on employees

(awareness of enterprises) ....................................................................................................... 201Fig. 3-3-7 Impact of wage systems with emphasis on seniority-based wages felt by employees .......... 201Fig. 3-3-8 Reasons for emphasizing the performance-based wage system for permanent employees

in the wage systems of enterprises .......................................................................................... 202Fig. 3-3-9 Influence of wage systems with emphasis on performance-based wages for employees

(awareness of enterprises) ....................................................................................................... 202

348

Fig. 3-3-10 Disadvantages of wage systems with an emphasis on performance-based wages (awareness of enterprises) ....................................................................................................... 203

Fig. 3-3-11 Wage systems that are considered preferable among permanent employees ....................... 203Fig. 3-3-12 Reasons why SME permanent employees view a wage system with an emphasis

on seniority as preferable ......................................................................................................... 204Fig. 3-3-13 Reasons why SME permanent employees view a wage system with an emphasis

on performance as preferable .................................................................................................. 204Fig. 3-3-14 Relation between the wage systems which companies emphasize

and company profits within the past three years ..................................................................... 205Fig. 3-3-15 Relation between the labor productivity and earnings per employee ..................................... 206Fig. 3-3-16 Relation between the growth rate of labor productivity and the growth rate

of earnings per employee ......................................................................................................... 207Fig. 3-3-17 Elements taken into consideration by enterprises when examining the wage levels

and its growth rates for its permanent employees .................................................................. 208Fig. 3-3-18 Transition of the amount of gross value added per employee................................................. 208Fig. 3-3-19 Average wages of permanent employees by industry ............................................................. 209Fig. 3-3-20 Industry composition of SME permanent employees with higher wages

than the average wages of large enterprise employees .......................................................... 209Fig. 3-3-21 The percentage of enterprises that set wages high compared to other companies

within the same industry or in other industries, in regards to the wage standards of permanent employees .......................................................................................................... 210

Fig. 3-3-22 Reasons for setting higher wages compared to other companies within the same industry or in other industries, in regards to the wage standards of permanent employees ................ 210

Fig. 3-4-1 The percentage of people satisfied with their work ................................................................. 212Fig. 3-4-2 Rate of work satisfaction as a permanent employee ............................................................... 213Fig. 3-4-3 The change in work satisfaction within a period of 10 years for permanent employees ........ 214Fig. 3-4-4 The source of work satisfaction for permanent employees ..................................................... 214Fig. 3-4-5 Relation between the level of work satisfaction of permanent employees

and the earnings of the SMEs they work in.............................................................................. 216Fig. 3-4-6 The effects of increased employee satisfaction on SMEs ....................................................... 216Fig. 3-4-7 Obstacles regarding the active communication between the management

and employees from the perspective of enterprises ............................................................... 218Fig. 3-4-8 Efforts to realize active communication between management and employees .................... 218Fig. 3-4-9 The gap between management and employees in the challenges faced

in conducting active communication ....................................................................................... 220Fig. 3-4-10 The implementation of training measures for permanent employees taken by enterprises ...... 221Fig. 3-4-11 Off-JT training institutions of enterprises ................................................................................. 221Fig. 3-4-12 Challenges that enterprises are aware of when conducting employee education

and training ............................................................................................................................... 222Fig. 3-4-13 Relation between the implementation of education and training for permanent employees

in SMEs, and SMEs’ understanding of the work satisfaction that employees feel ................. 223Fig. 3-5-1 Annual total working hours of production workers (by country)

(estimate in manufacturing industry) ........................................................................................ 224Fig. 3-5-2 Percent of enterprises with a certain number of annual holidays (by employee size) ............ 225Fig. 3-5-3 The difference between enterprises and employees concerning work life balance ............... 226Fig. 3-5-4 Obstacles in achieving a work life balance .............................................................................. 226Fig. 3-5-5 Effects of annual holiday satisfaction of SME employees on their work life balance.............. 227Fig. 3-5-6 Gaps concerning the implementation of measures taken to achieve work life balance

in SMEs ..................................................................................................................................... 228Fig. 3-5-7 Effects of work life balance on SME employees’ workplaces’ profits ..................................... 228Fig. 3-5-8 Employment rate according to gender and age ...................................................................... 230Fig. 3-5-9 Trend in the percentages of women regarding their employment type (by employee size) ....... 230Fig. 3-5-10 Trend of earnings of permanent employees (by gender) ......................................................... 231Fig. 3-5-11 Trends in permanent employees’ working hours (by gender) .................................................. 232Fig. 3-5-12 Trend in employees’ earnings per working hour (by gender) ................................................... 232Fig. 3-5-13 Views on women working ......................................................................................................... 233Fig. 3-5-14 The percentage of women that desire to work again after having retired to raise children .... 233

Index of figures

349

Fig. 3-5-15 Ideal ways of working around child birth/during child rearing period (according to employee size) ................................................................................................... 234

Fig. 3-5-16 Current employers of female permanent employees that had previously retired to raise children ........................................................................................................................ 234

Fig. 3-5-17 The possibility of re-employment for former female employees that had previously retired to give birth to and raise children (by employee size) .............................................................. 235

Fig. 3-5-18 The conditions of measures being put into effect for women to work while raising children .... 235Fig. 3-5-19 Measures implemented for women’s employment that have progressed compared

to the last three years or so ...................................................................................................... 236Fig. 3-5-20 The gap concerning the measures needed in order to have women work

while raising children ................................................................................................................ 237Fig. 3-5-21 The gap between enterprises and employees concerning measures that are effective

in allowing women to continue working as permanent employees while raising children (top 5 items) .............................................................................................................................. 238

Fig. 3-5-22 Sources of anxiety among women working as permanent employees while raising children ... 238Fig. 3-5-23 Percentage of female non-permanent employees that desire to become

permanent employees .............................................................................................................. 239Fig. 3-5-24 Reasons why people do not want to work as permanent employees ..................................... 239Fig. 3-5-25 Effects of measures being taken for women that are working while raising children ............. 240Fig. 3-5-26 Relation between profits and implementation of measures for women to work

while raising children in SMEs .................................................................................................. 240Fig. 3-5-27 Percentage of men taking child care leave (by employee size) ............................................... 241Fig. 3-5-28 Child care support systems that male permanent employees want to use,

and child care support systems usable for or used by male permanent employees .............. 242Fig. 3-5-29 Measures considered crucial for men to take their child care leave ....................................... 243Fig. 3-5-30 Employment rate (by age) ........................................................................................................ 245Fig. 3-5-31 Active opening rate according to age (2008) ........................................................................... 245Fig. 3-5-32 The difference between the retirement age of enterprises and the age

that employees want to work until............................................................................................ 245Fig. 3-5-33 Employment systems that are introduced by enterprises for the elderly

and employment systems that employees would like to use, or have used ............................ 247Fig. 3-5-34 The ratio of permanent employees according to scale and age (2007) .................................. 247Fig. 3-5-35 The percentage of retired employees that have reached the retirement age

and desire to work, and their reasons ...................................................................................... 248Fig. 3-5-36 Income and expenditure of households of which the household head is of 65 years

or above .................................................................................................................................... 248Fig. 3-5-37 Conditions of the measures being taken by enterprises regarding the employment

of the elderly ............................................................................................................................. 249Fig. 3-5-38 Measures for the employment of the elderly that have progressed in the last three years

and measures which employees believe to be essential ......................................................... 249Fig. 3-5-39 Issues related to progress in the employment of the elderly ................................................... 250Fig. 3-5-40 Relationship between the percentage of older people (55 years or above) and profit ........... 250Fig. 3-5-41 The effects of the measures being taken for the employment of the elderly .......................... 251Fig. 3-5-42 Profit trends of enterprises that are or are not taking measures

for the employment of the elderly ............................................................................................ 251

Regarding the 2009 White Paper on Small and Medium Enterprises in Japan, “Trends among SMEs in fiscal 2008” wasdraftedbytheResearchOfficeoftheSMEAgencyintheMinistryofEconomy,TradeandIndustry(members:IchiroKawakami,SeiichiroInoue,KeiNara,ToruMuta,MasashiAida,YoheiMatsukawa,TomotakaHirabayashi,AtsushiEndo,and Kohei Teraoka). “SME policies implemented in fiscal 2008” and “SME policies planned for fiscal 2009” were drafted by theCounselorOfficeoftheDirectorGeneral’sSecretariatoftheSMEAgency(members:ToshiyukiYokota,TakashiKoyari,Gaku Moriya, and Satoshi Shimoda).

Thanks are due to Junichi Akatsuka (Deputy Manager, Upgrading Project Promotion Unit, Regional Economy Promotion Division, SMRJ), Iichiro Uesugi (Associate Professor, Institute of Economic Research, Hitotsubashi University), Masa Kanai (CentralUrbanDistrictsOfficer,CentralUrbanDistrictsSupportUnit,RegionalEconomyPromotionDivision,SMRJ),Seiichi Saito (Director, Distribution Systems Research Institute), Tadashi Saito (Vice Senior Researcher, Economic and IndustrialStudyGroup,Economic&SocialPolicyDepartment,MitsubishiUFJResearchandConsultingCo.,Ltd.),RyoheiNakamura(Professor,GraduateSchoolofHumanitiesandSocialSciences(Economics),OkayamaUniversity),TakehikoYasuda(Professor,FacultyofEconomics,ToyoUniversity),andmanyotherswhokindlygavetheirassistance.

We would also like to thank the SME entrepreneurs and everyone else who took part in interviews and surveys, and provided valuable advice and comments that contributed to the publication of the White Paper.



and Human Resources

JSBRIJAPAN SMALL BUSINESS RESEARCH INSTITUTE

2009 White Paper on Sm

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and Human Resources

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2009 White Paper on Small and Medium Enterprises in Japan

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