Small but Not Independent: SMEs in Japan

By Dana, Leo Paul | Journal of Small Business Management, October 1998 | Go to article overview

Small but Not Independent: SMEs in Japan


Dana, Leo Paul, Journal of Small Business Management


Central to the Japanese belief system are the concepts of obligation, indebtedness, and loyalty, all of which reinforce the very important notion of harmony for the common good. The individual in Japan is always conscious of belonging to a group. Whereas small business owners in North America may be described as managing independent businesses, small firms in Japan seldom stand alone. Rather, it is normal in Japan for enterprises to participate in several types of business alliance.

Such linkages among firms in Japan have resulted in a unique small business sector. However, this has not been the focus of much major research, although many studies have provided a rich literature about Japanese enterprises in general (Abegglen and Stalk 1987; Gibney 1975; Johnson 1982; Kono 1984; McMillan 1985; Ouchi 1981; Pascale and Athos 1981; Patrick and Rosovsky 1976; and Whitehill 1991) and about inter-firm relationships (Gerlach 1992; Miyashita and Russell 1994; Wright 1989; and Wright and Pauli 1988). The purpose of this article is to shed some light upon the role of small businesses in Japanese business alliances. This is an important topic, as 99 percent of the firms in Japan are small, and most of these are involved in inter-firm linkages.

Methodology

This article relies primarily on data obtained from open-ended interviews with Japanese academics, small business owners, and decision-makers. Those at the Small Business National Corporation and those at Tokyo University were very co-operative, as were those at the Ministry of International Trade and Industry. Discussions with Masahiro Ishiguro, the director general of the Small and Medium Enterprise Agency in Japan, also contributed to this article.

Entrepreneurial Spirit in Japan

Devos (1973) was among the first to link Japanese ethnicity to its achievement-oriented culture. Although Confucianism (the major religion in Japan) does not encourage entrepreneurship per se (Jones and Sakong 1980), the Japanese have been described as being successful at business ownership because of the values inspired by their religion, including diligence, frugality, and hard work (Petersen 1971).

Small business are central to the Japanese economy. The Economist reported that the self- employed and their unpaid family workers account for nearly a third of the labor force in Japan, compared with less than 10 percent in America. Japan has more small business owners per capita than any other big industrial economy (The Economist 1993). More recent statistics obtained by the author from the Ministry of International Trade and Industry indicate that there are over six million small businesses in Japan, representing 99 percent of all firms in the country and employing 75 percent of the working population. Since the 1980s, most Japanese investment projects abroad have been undertaken by small- and medium-sized firms.

The flagship of entrepreneurship in Japan is chusho kigyo, literally small- and medium- sized enterprises. These are legally defined as: (1) retail or service operations with fewer than 50 employees (or with a capital less than [yen]10 million); (2) wholesale enterprises with fewer than 100 employees (or with a capital less than [yen]30 million); or (3) industrial enterprises with fewer than 300 employees (or with a capital less than [yen]100 million).

With the Small and Medium Enterprise Basic Law of 1963, the Ministry of International Trade and Industry created the Small and Medium Enterprise Agency to safeguard the interests of this sector. Also, the government was generous in exempting small businesses with sales less than [yen]30 million from .Japan's "Consumption Tax." Businesses with annual sales ranging between [yen]30 million and [yen]60 million are entitled to a variable exemption in the form of a sales tax credit. This has contributed to the profitability of small firms. However, small business owners in Japan do not rely primarily on the state for help, but rather on each other and on other interfirm linkages. …

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