Chapter 26. Japan

Figure 26.1. Structure and performance of the SME sector in Japan
Figure 26.1. Structure and performance of the SME sector in Japan

Note: Chart A. Value added data refer to 2011. Charts C, D. Data on employment refer to number of employees and the reference year 2016. Also, due to data availability for Japan, labour productivity is measured as value added for employee, instead of value added per persons employed.

Source: Chart B. OECD Timely Indicators of Entrepreneurship database 2018. Charts A, C, D. OECD Structural and Demographic Business Statistics Database 2018. (http://dx.doi.org/10.1787/sdbs-data-en). E. Ministry of Health, Labour and Welfare of Japan, "Employment Insurance Business Annual Report".

 StatLink http://dx.doi.org/10.1787/888933925293

SME business conditions and access to strategic resources

Institutional and regulatory framework

Corporate insolvency regime in Japan is among the most efficient in the OECD area. Conditions for starting a business and the regulatory framework remain however comparatively complex. The Basic Policy on Economic and Fiscal Management and Reform 2018 provides the framework for regulatory reforms including a reduction of the costs associated with administrative procedures and the promotion of a Regulatory Sandboxes System. Conditions for business transfers have also been revised in 2018 with reduced taxation on the succession of licenses and permits and the implementation of new regional business succession support agencies.

Market conditions

Japan is strongly integrated into GVCs, especially in Asia, and is a major exporter of high value-added goods. Rising trade protectionism has become a key factor of vulnerability given the country’s export-driven growth since mid-2016. The Basic Policy on Economic and Fiscal Management and Reform 2018 foresees comprehensive support for the overseas development of SMEs, including by strengthening legal capacity in international disputes and arbitration (e.g. research assistance by legal professionals and translation of Japanese laws).

Infrastructure

Seven years after the Great Earthquake, almost all the production facilities have been recovered and Japan is aiming to construct the Next Generation Infrastructure Maintenance System. The government is to reach the target amount of about JPY 30 trillion of orders for infrastructure systems in 2020. Applying smart technology to infrastructure development is seen as a priority for achieving the government’s vision of a data-driven ‘Society 5.0’. The 2017 New Economic Policy Package plans to deliver automated-vehicle transport services by 2020 and to support the diffusion and use of 3D data and ICT in the construction sector. A programme was launched in 2017 to detach experts in SMEs and diffuse information and best practices on technological innovation in the construction industry.

Access to finance

SME lending in Japan has steadily increased since 2013, against the backdrop of very low interest rates, with SME outstanding loans surpassing the pre-crisis levels in 2016. Venture capital investments have also recovered, with continued year-on-year positive growth over 2015-17. Out of the 3.8 million SMEs active in Japan (2017), over 1.3 million benefit from public credit guarantees. In 2017, the government reformed the credit guarantee programme to reduce banks’ over dependence on credit guarantees and encourage lending based on business evaluation. The reform foresees a decrease of the guarantee coverage ratio for depressed industries from 100% to 80%, but also introduces a 100% guarantee for start-ups to promote private sector innovation.

Access to skills

Japan has a highly educated workforce with skills for tech-advanced industries. Nonetheless, in 2016, 48.2% SMEs reported shortages in core personnel. Also, due to the ageing of entrepreneurs, business exits hit a record high in 2017 despite a decline in bankruptcies. The Basic Policy on Economic and Fiscal Management and Reform 2018 puts priority on a Human Resources Development Revolution. The reform capitalises on women, disadvantaged students and life-long learning through financial incentives for training providers, free university education for low-income students, free early children education and an extension of childcare provision. The government is also revising the visa and residence status of foreign workers and students.

Access to innovation assets

Japan is a global leader as per its R&D intensity (3.14% of GDP in 2016). However, business R&D is mostly concentrated in large firms and SME participation remains among the lowest in the OECD area. Japanese SMEs tend also to make less use of digital technologies than SMEs in most other OECD countries. The 2016 Open Innovation Platform for Enterprises, Research Institute and Academia (OPERA) involves SMEs at the pre-competitive stage into collaborative partnerships. The 2017 New Economic Policy Package proposes an amendment to the Patent Act for reducing SME patent fees by half. It also introduces financial measures for SMEs to invest in facilities and ICT equipment.

The full country profile is available at https://doi.org/10.1787/34907e9c-en

References

Cabinet Office (2018), Basic Policy on Economic and Fiscal Management and Reform 2018 (Jun. 15, 2018), http://www5.cao.go.jp/keizai-shimon/kaigi/cabinet/2018/2018_basicpolicies_en.pdf (accessed on  November 2018).

CPFIJ (2017), Council for Promotion of Foreign Direct Investment in Japan Working Group for Revising Regulations and Administrative Procedures Final Report (Summary), http://www.invest-japan.go.jp/policy/simplify_regulations_and_procedures/compilation_report_summary_en.pdf.

JapanToday (2018), The Growth of Robotics in Japanese Schools, https://japantoday.com/category/features/lifestyle/the-growth-of-robotics-in-japanese-schools.

METI (2018), Cabinet Decision on the Bill for the Act on Special Measures for Productivity Improvement and the Bill for the Act of Partial Revision of the Industrial Competitiveness Enhancement Act, etc., Ministry of Economy, Trade and Industry, https://www.meti.go.jp/english/press/2018/0209_002.html

Nikkei Asian Review (2018), Chinese Robotics Startup Cracks the Code for Western Markets, https://asia.nikkei.com/Spotlight/Startups-in-Asia/Chinese-robotics-startup-cracks-the-code-for-Western-markets.

NISTEP (2015), Report on the Forth Round of the Japanese National Innovation Survey (J-NIS 2015), NISTEP REPORT No 170, http://doi.org/10.12108/nr170.

OECD (2018), Japan: Promoting Inclusive Growth for an Ageing Society., OECD Publishing, Paris, https://doi.org/10.1787/9789264299207-en.

OECD (2018), “Japan”, in OECD Economic Outlook, Volume 2018 Issue 1, OECD Publishing, Paris, https://doi.org/10.1787/eco_outlook-v2018-1-29-en.

OECD (2018), Unemployment Rate (Indicator), http://dx.doi.org/doi: 10.1787/997c8750-en.

OECD (2017), Japan Policy Brief: Improving the Performance of Japan's SME Sector, http://www.oecd.org/policy-briefs/japan-economy-improving-the-performance-of-japan-sme-sector.pdf.

OECD (2017), OECD Economic Surveys: Japan 2017, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-jpn-2017-en.

SMEA/METI (2017), 2017 White Paper on Small and Medium Enterprises in Japan, http://www.meti.go.jp/english/press/2017/0421_003.html.

ZDNet (2018), Japan Set to Deploy English-speaking Robots to Schools: Report, https://www.zdnet.com/article/japan-set-to-deploy-english-speaking-robots-to-schools-report/.

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