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2016/SMEMM/009 Agenda Item: 3.3.2

Support for Japanese SME Overseas Business Development

Purpose: Information Submitted by: Japan

23rd Small and Medium Enterprises Ministerial Meeting

Lima, Peru9 September 2016

Support for Japanese SME Overseas Business Development

September 9, 2016Parliamentary Vice-Minister of Economy, Trade and Industry

Takumi Ihara

Small and medium-sized enterprises and micro businesses (hereafter SMEs) make up 99.7% ofall domestic enterprises and employ approximately 70% of the domestic workforce.

Therefore, SMEs form the foundation of the Japanese economy.

2

Overview: SMEs and the Japanese Economy

1(0.3%) 55.7

(14.6%)

325.2(85.1%)

Number of enterprises

1,433(29.9%)

2,234(46.6%)

1,127(23.5%)

Number of employees

(Year)

(10,000 parties)

(10,000 parties)

(10,000 people) 0

50

100

150

200

250

300

350

400

450

99 01 04 06 09 12 14

Change in the number of SMEs

Large enterprise

Medium-size enterprise

Micro businesses Medium-size enterprise

Micro businesses

Source: Economic Census for Business Frame, Ministryof Internal Affairs and Communications(MIC)

Source: Recompiled data from Economic Census for Business Frame, Economic Census for Basic Activity, Establishment and Enterprise Census, Ministry of Internal Affairs and Communications (MIC)

Ordinary profits are currently at their highest levels since FY2010, indicating stable growth. The number of companies filing for bankruptcy has been decreasing for seven consecutive years.

3

Overview: SMEs and the Japanese Economy

0

5,000

10,000

15,000

20,000

25,000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Change in the number ofbankrupted SMEs

0

2

4

6

8

10

12

14

16

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Change in ordinary profits

Medium-size enterprise

Micro businessesSmall and medium enterprises

(Year) (Year)

(Trillion JPY)

(Case)

Source: Bankruptcy Monthly Report, Tokyo Shoko

Research, Ltd.Source: Financial Statements Statistics of Corporations by

Industry, Annually, Ministry of Finance (MOF)

4

The ordinary profits of domestic SMEs are at historical highs. Along with a decrease in thenumber of bankrupted companies, the number of total operators has increased over the pastdecade.

However, the business environment for SMEs faces uncertainty due to a declining birthrate anddeclining labor force.

In part due to these headwinds, the number of domestic SMEs pursuing overseasbusiness development has been increasing, pinning their business growth in internationalmarkets.

SMEs Pursuing Overseas Business Development

1,389 964 

1,340  1,253  1,249  1,452  1,699  1,811  1,680  1,628 1,916  1,769  1,801 

4,342 

3,568 

4,603  4,702  4,838 5,348 

6,196  6,303 5,937  5,920 

6,336  6,302  6,397 

0.60.5

0.7 0.7 0.70.8

1.0 1.0 1.1 1.1 1.2 1.3  1.4 

1.51.4

1.71.9 1.9

2.3

2.7 2.7 2.8 3.0 3.03.3 

3.5 

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

01 02 03 04 05 06 07 08 09 10 11 12 13

Change in the number and percentage of companies involved in direct export based on company size (manufacturing)(Company) (%)

(Year)(Source) Ministry of Economy, Trade and Industry “Census of Manufactures,” Ministry of Internal Affairs and Communications, Ministry of Economy, Trade and Industry “FY2012 Economic Census for Business Activity”; Re-edited

Micro business

Small and medium enterprises

High economic growth is expected in the Asia Pacific region toward 2020. In Japan, the number of SMEs targeting overseas demand has been increasing

through overseas business development. However, the percentage of SMEs that consider overseas business development

“not important” remains high.

5

SME Perceptions of Overseas Business Development

(Year)

(US$)

Source: IMF “World Economic Outlook, October 2015”*Estimated value for 2020.

0

20,000

40,000

60,000

80,000

100,000

120,000

90 00 10 20

OthersEUCentral and South AmericaUSAIndia, NIEs, ASEAN5ChinaJapan

Asian market

Change in net GDP based on region (USD)

19.7%

80.3%

Important

Not important

Perception of SMEs about Importance of overseas business development

(Source) “Questionnaires on growth and investment behavior in small and medium enterprises” commissioned by Small and Medium Enterprise Agency (December 2015, Teikoku Databank Co.)

(n=3675)

The main reasons SMEs consider overseas business development important but do not actuallyconduct it lies in insufficient information or know-how about international operations and deficiencies inhuman resources etc..

Therefore, factors contributing to concerns about overseas business development are largelyconsidered to be “within enterprise” reasons.

6

Why do SMEs not Conduct Overseas Business Development?

19.4 

29.0 

32.3 

45.2 

50.5 Lack of knowledge/information/know-how about international operations

Cannot secure human resources that can address international operations

Cannot secure partners/trading companies in recipient country

Too occupied with domestic operation to consider it

Cannot predict/evaluate the effects of investment

Main Reasons SMEs consider overseas business development important but actually do not conduct it (Top 5)

(Blue indicates enterprise-related reasons, and red recipient country-related reasons.)

(n=93, multiple answers allowed)

Source: Teikoku Databank, Small and Medium Enterprise and Micro Business Development and Investment Activities Questionnaire Survey(December 2015), commissioned by SME Agency

The challenges for SMEs (manufacturers) actually conducting overseas business developmentlie primarily in issues concerning human resources/labor management, local legal systems andcommercial practices, and quality control/delivery management etc..

These are considered to be mainly “within country”-related factors.

7

Challenges Facing SME Overseas Business Development

39.8 

45.5 

46.9 

51.2 

52.6 Assurance of foreign human resources and labor management

Response to local legal systems and commercial practices

Quality assurance/delivery management

Risk associated with fluctuations in foreign exchange rates

Assurance and development of Japanese human resources that take initiative in overseas development

Challenges for SMEs (manufacturers) with overseas business development (Top 5)(Blue indicates enterprise-related factors, red indicates country-related factors, and gray factors related to neither.) (n=211, multiple answers

allowed)

Source: Teikoku Databank, Small and Medium Enterprise and Micro Business Development and Investment Activities Questionnaire Survey(December 2015), commissioned by SME Agency

8

The Government of Japan (GOJ) is implementing elaborate, multi-layered, and seamlesssupport for SMEs planning overseas business development in each of the followingphases: (1) Research, (2) Planning/Preparation, (3) Overseas Business Development, and(4) Business Stabilization/Expansion.

More concretely, the GOJ sets a series of support measures such as collectinginformation on overseas business development, consultation/advice, F/S support,exhibitions/business meetings, and human resource development to address challengesfacing SMEs.

Moreover, the GOJ utilizes a holistic approach based on close cooperation with public andprivate support organizations, including the Consortium for New Export Nation and theSME Overseas Business Support Platform.

Support for Japanese SMEs toward Overseas Business Development

Targets by Japan The Government of Japan has placed a high priority on supporting SME growth and

overseas business development, and set a target of realizing 10,000 new entrant SMEsfrom FY2013 to FY2017 under the “Japan Revitalization Strategy” (Cabinet Decision onJune 14, 2013).

(*) Between FY2013 and FY2015 about 6,500 cumulative new entrants have beenrealized.

Japan’s Support

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Collecting Information / ResearchClarifying objectives of overseas development

Gathering informationfor overseas development

Formulating business planConsultation with experts

Business discussions/contract negotiationsContract closure/corporate registration

Sales channel expansion

Overseas investmentFinding overseas partners(agencies, buyers, etc.)

Overseas DevelopmentFinding overseas trading/business partners, etc.

■ Web matching (SME Support, JETRO)

■ Participation in overseas exhibitions (SME Support, JETRO)

■ Business meetings with overseas buyers (SME Support, JETRO)

Product development

Fund procurement

STEP1

STEP2

■ Support to F/S(SME Support)

■ Consortium for New Export Nation (JETRO, etc.)

Planning/PreparationDomestic planning/preparation

■ Information collection (consultation on trading investment, etc.)(SME Support, JETRO)

■ Individual advice by overseas business experts (SME Support, JETRO)■ Consulting before contract closure (JETRO)

■ Product development/formulation of strategies, etc. (The Small and Medium Enterprise Agency)

■ Subsidies for continuation(The Small and Medium Enterprise Agency)

■ Subsidies for manufacturing, commerce, and services (The Small and Medium Enterprise Agency)

■ Fostering global human resources

(HIDA, SME Support）■ Overseas internship for young workers

(HIDA, JETRO)

■ Consultation for overseas development

■ Seminars(SME Support,

JETRO)

Business Stabilization/ExpansionExpanding overseas sales channels, establishing bases in recipient country

STEP3

STEP4

■ Advices on intellectual properties (Japan Patent Office, INPIT, etc.)

■ Advice by coordinators through SME Overseas Business Support Platform (JETRO)

■ Positive use of funds (Shoko Chukin Bank, Japan Finance Corporation)■ Trade insurance (Nippon Export and Investment Insurance [NEXI])

Business reorganization

■ Support for businessreorganization (SME Support)

Support Measures for SMEs toward Overseas Business Development

Support by experts (hands-on)

Supporting organizations formulate and share plans for embodiment, including the setting of specific numerical goals on activity policies and main emphasis.

Supporting organizations consider various possibilities and deepen mutual cooperation by examining how they can collaborate in main focus items.

Review additional export promotion policies to be implemented.

JETRO

NEXI

JICA

SME support

Japanese Standards

Association

Society of Commerce and Industry

Chamber of Commerce and Industry

Other organizations

Local authorities

NEDO

Close tie-ups among supporting organizations (one-stop contact point)

How to promote closer tie-ups in the future

Meetings of Participants ofConsortium for New Export Nation

Support overseas development of SMEs with the cooperation of supporting organizations

Support by experts in overseas businesses in various steps from technology development to market expansion 10

Example of Support 1: for SMEs Planning Overseas Business Development

The Government of Japan established the Consortium for New Export Nation tofacilitate close “tie-ups” between the public and private sectors to realize support fromexperts for overseas business.

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To support SMEs that have decided to conduct overseas business development, theGovernment of Japan established the SME Overseas Business Support Platform incooperation with public and private support organizations in recipient countries where highlevels of interest are expected for business expansion.

This platform provides comprehensive consultation services by arranging for and linkingcoordinators with knowledge of local markets and networks with local authorities and localcompanies.

Example of Support 2: for SMEs Involved in Overseas Business Development

Germany(Dusseldorf)

Indonesia(Jakarta, Surabaya)

Philippines (Manila)Vietnam (Ho Chi Minh)

Vietnam (Hanoi)

India(Mumbai)

Thailand (Bangkok)

India (Chennai)

Western China(Chongqing, Chengdu)

Myanmar(Yangon)

Brazil(São Paulo)

US(San Francisco)

China (Hong Kong)

Eastern China(Shanghai)

Cambodia(Phnom Penh)

Bangladesh(Dhaka)

Northern China(Beijing, Tianjin)

Southern China(Guangzhou, Shenzhen, Xiamen)

Malaysia(Kuala Lumpur)

Taiwan (Taipei)

Mexico(Bajio, Mexico City)

JETROInternational

offices

Consultants

Japanese chambers of commerce

Diplomatic missions

Legal/accounting firms Financial institutions

HIDA

Local government offices

PF Coordinator

Temping agency

Platform image diagram

JICA

12

Case 1: Green SME Involved in Overseas Business Development

Manufacturer of various food industry-related paper products such as paper napkins and kitchenpaper. contributes to protecting forestry resources by using residue of sugar cane (bagasse)

generated in high volume in the process of sugar production and proactively using reeds thatare widely grown in the recipient countries,

uses bagasse, which is softer than timbers, realizes energy saving during the paper-makingprocess,

produces paper products by using recycled materials (e.g. milk cartons), while 3 billion milkcarton sheets are produced annually in Japan,

has built seven factories in China and one office in Korea, and is planning to establish aregistered corporation in Thailand, and

developed and operates EC websites internally for selling industry-related products.

13

A developer and manufacturer of special-purpose papers with diverse functions, including insulationproperties produces paper products with excellent materials in line with the trend of seeking weight

reduction and economic efficiency of components and tools, so there has beendevelopment/production of special-purpose paper for diverse applications,

has adopted a traditional Japanese paper manufacturing method called “nagashi-suki”, succeeded in manufacturing paper with synthetic fibers for the first time in the world in 1958, developed and commercialized in functional paper through the proactive use of characteristics

of non-timber fiber "Kenaf“, and established the first Japanese paper mill in China and developed borderless overseas

strategies to address contemporary needs such as technical partnership with US companies.

Case 2: Green SME Involved in Overseas Business Development

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Amidst expanding international business markets, it isnecessary for SMEs to create favorable business cyclesthrough conducting proactive overseas development andinvesting their profits for future growth.

It is also important for each APEC economy to promote activeSME participation in the global value chain (GVC) through aseries of measures aimed at alleviating challenges facing SMEsconducting overseas business development, such as improvinginfrastructure, legal systems and business practices, protectingintellectual property, and preventing technology outflow.

Conclusion: for SMEs’ Participation into the Global Value Chain