Development of Small and Medium Enterprises in Japan


After the Second World War, Japan has taken various actions to reform every institution that was destroyed during the war era. One important institution that has been seriously restructured is related to industrial development. In the post-World War II era, the government had introduced numerous Japan industrial policies to restructure the economy in order to rebuild the country and strengthen her nation’s socio-economic well being. Industrial development in Japan was supported by diversified economic activities.

By giving emphasis upon industrialization, one essential component of the industrial reformations is highly focused to the development of small and medium enterprises (SMEs). Hence, SMEs policies are considered to be a very essential policy component in Japan beside the attention given to the essence of industrial policy. SMEs policies are confined mainly upon the success of certain target groups of firm of a specific scale while industrial policy gives more focus generally upon particular industries.

Definition of Small and Medium Enterprises in Japan

SMEs in many countries are different in term of its definition and such interpretations depend upon the criteria set by the particular government according to her social, economic and political agenda. In Japan, there are many economic sectors involve in the SMEs activities and such fields can be generalized as manufacturing, wholesale, retail trade and services.

By definition, the SMEs in Japan, especially in the related fields as being mentioned above, can be categorized according to the features in the statement below:

Fields Employees Capital

(a) Manufacturing >300 >Y100 million

(b) Wholesale >100 >Y30 million

(c) Retails and Services >50 >Y10 million

Since SMEs are not having the full capacities to compete in the real global market, they have to face many imperfections in the market concerning labor, financial, goods and information. One instance, SMEs are at a disadvantage when it comes to skilled labor formation because employees are less likely to stay with the firm compared to those in the larger industry. In fact, the management of SME is also having difficulties to provide facilities for its human resources development especially on providing training and retraining programs to upgrade the skill of the workers.

Since SMEs play a vital role in the Japan national economy, the government established policies to give wider range of opportunities for the SME to develop and be competitive in the real economy. Based on 1994 statistics, the SMEs provided employment (excluding employment in the primary industry) to 41.42 million people or 76.5% of the total employment in private business establishment in Japan. Shortly, such figures show that it is important to have a diversification of government policies to ensure the growth of the SMEs businesses.

Period of Policy Development for Japan’s SME

Based on the historical development of the SMEs in Japan, there are five categorical periods identified representing the scenario related to policy concern for the SMEs development in the post-World War II. The five periods are recondition period (1945-1952); self sustaining economy period (1953-1960); rapid growth period (1960-1970); qualitative consolidation period (1970-1985); and last but not least, the intersection, cooperation and contributive period. To generalize it, from the end of the Second World War to the 1950’s, the invented policies were more passive and protective in nature to secure the SMEs. In the middle of 1950’s to 1960’s, many modernization concept policies were introduced to give more emphasis for modernizing facilities and consolidating firms especially in the manufacturing fields. Since 1970’s, many policies have given more attention to build up soft management resources for advancing "knowledge intensity" in SMEs.

Content of SME Policies

Generally speaking, there were many laws introduced by the Japanese government related to finance, management, modernization and other related features to support the SMEs activities such as SMEs Cooperative Association Law, SMEs Stability Law, Credit Guarantee Corporation Law, SMEs Modernization Promotion Law, Law on Financing for the Modernization of SMEs, Small Business Investment Company Incorporation Law, SMEs Subcontractor Promotion Law, Temporary Law on Business Measures for SME and many others. Such enactments are so important to guarantee the growth of the SMEs. To simplify, policies related to SMEs are divided into two categories. One focuses on SMEs as a whole (general or basic policies) and another focuses on particular groups SMEs (particularistic policies).

The goal of general policies is to alleviate disadvantages faced by SMEs due to their failure in the markets for people, money, goods and information. The policies include labor policies related to development of employees’ skills through occupational training; policies for maintaining appropriate interfirm transaction such as regulation of abuses by large firm and organization of SMEs; financial policies such as the credit guarantee program; consulting and guidance policies which provide information on technology, markets and management and many more. For particularistic policies, they focus specific industry such as industries-specific modernization policies etc. These policies are a response to the specific policy goals. All these implementations show that the Japanese government is very serious in giving priorities in its policy formulation to develop the growth of the SMEs entities.

Conclusion: Malaysia’s SMEs Development – Adopting the Japanese Style

There is no doubt the SMEs play a vital role in the economy. The government of Malaysia too has taken series of efforts to ensure that the SMEs in the country grow successfully and contribute to the betterment of the economy as a whole. However, the trend of SMEs in Malaysia does not seem to excel compared to the Japanese SMEs. Although many opportunities and programs are provided (like the Japanese), still not so many of these groups of enterprises show their color of success. They seemed to be very dependent solely to the government assistance. Some of the newcomers are not well expose to government incentives and programs. Therefore, all ministries related in monitoring the progress of the SMEs in Malaysia should reevaluate the system delivery and try to provide an easy measure of information access by manipulating the information technology. This can be done through inventing an on-line SMEs Information System for public access to consult and provide information on technology, markets and management and many more. Competitions among SME’s should be avoided and there is a necessity to consolidate SMEs (owned by bumiputra: son of the soils and non bumiputra) entities in order to have a well-balance expertise while running their business. With such effort, this will at least improve the growth of the SMEs in Malaysia as what we can see in the Japanese style of management for their SMEs development.

Azman Mohd. Yusof

Japan International Trade and Industrial Policy

Graduate School of Policy Science, Saitama University

25 February 1998