The fiscal 2007 government white paper on small and medium-size enterprises points to hard times. While the expansion of the Japanese economy slowly pushes up their profitability, the gap between them and large enterprises is widening. Largely dependent on domestic demand and public works, they suffer from sluggish spending in both. High oil prices have reduced the profits of more than 90 percent of them.
From 2004 to 2006, the number of companies with either less than ¥300 million capital or fewer than 300 employees decreased by about 130,000 to about 4.2 million, although the technical skills utilized by many of these companies are of a high level.
Labor productivity (value added by a company divided by the number of workers) at small and medium-size manufacturing firms is more than 40 percent less than at larger ones. Even in information, communication and wholesale fields, labor productivity is more than 30 percent less. Japan's overall labor productivity stands at about 70 percent of America's.
The report suggests that small and medium-size enterprises can increase productivity by making use of information technology and cultivating overseas markets. It also shows that they can create new business opportunities through tieups with what have traditionally been considered unrelated entities, such as research institutes, universities, enterprises from different industries and overseas companies. Such tieups differ from relations in more typical interlocking corporate groupings.
One success story reported by the white paper is a knitwear company in Kiryu, Gunma Prefecture, with eight workers. It started supplying mufflers to the New York Museum of Modern Art in 1999, and has enjoyed top sales at the MoMA shop for five years. It has increased sales in art museums and department stores in Japan. The determination to grab every chance and think differently can help any enterprise.