A report on trends among SMEs in FY 2008 and SME policies in FY 2009 (the “White Paper on Small and Medium Enterprises in Japan”) was issued by the Small and Medium Enterprise Agency of the Ministry of Economy, Trade and Industry (METI) and was approved by the Cabinet on April 24, 2009.

This document analyses trends among SMEs in FY 2008, as their business environment has deteriorated further and reached its worst levels ever. It focuses on and analyses innovation and the securing and development of human resources from the standpoint that SMEs should take advantage of their strengths, such as creativity and mobility, to overcome the present difficulties.

Chapter 1: Economic and financial situation surrounding SMEs in FY 2008

Chapter 1 analyses trends among SMEs such as business conditions and financing of SMEs amidst the rapid deterioration of the domestic economy due to the worldwide financial crisis and economic slowdown and in an increasingly severe employment situation.

• Decreased exports have led to a rapid decline in production and a substantial cut in orders with subcontractors. Business conditions for SMEs have deteriorated and they have difficulties managing cash flows due to the drop in sales.
• Under these circumstances, the government has actively implemented measures for SMEs, including a 30 trillion yen fund-raising scheme and the optimization of subcontractor transactions.

Chapter 2: Creation and development of markets by SMEs

Chapter 2 identifies changing market needs and analyses issues that need to be overcome to realize innovation, with the aim of maintaining and increasing sales in the current economic situation.

• Characteristics (strengths) of innovation by SMEs include originality and ingenuity of management and agile decision-making.
• SMEs, which focus on research and development, tend to find themselves in a satisfactory position. Therefore, the SMEs are expected to work for the realization of innovation through research and development, etc., despite the current severe economic situation.
• To create a market network, it is important for SMEs to work for agriculture,commerce and industry collaboration, acquisition of customers through the use of IT, and cultivation of overseas markets, in addition to integration of manufacturing and services aimed at identifying market needs.
• As for management resources to support innovation by SMEs, it is necessary to improve the ability of financial institutions, which primarily play a role of fund providers, to make good judgments on matters such as strategic protection and the appropriate use of intellectual property, and the dissemination of technologies and skills aimed at developing human resources to take a major role in innovation.

Chapter 3: Employment trends among SMEs and securement and development of human resources

Chapter 3 looks at employment trends among SMEs and the situation surrounding human resources at SMEs in an increasingly severe employment situation, and analyses issues that need to be overcome to secure and develop human resources to support SMEs.

• There is a growing sense of employment surplus among SMEs, although some SMEs still feel that they need more human resources. This suggests that there are employment mismatches.
• Many full-time employees at SMEs are former non-regular employees and career changers from different industries. In the light of the severe employment situation, it is important to provide a bridge between workers and some SMEs which are experiencing a shortage of manpower.
• Investigation of working conditions has revealed that some full-time employees of SMEs receive more income than the average wage at large enterprises. There is little difference between employees of SMEs and those of large enterprises in terms of the sense of satisfaction they feel at work. It is important to improve the motivation and ability of employees of SMEs, for example, by improving communication between management and employees.

This paper describes measures to be taken in FY 2009 with a focus on four areas:
(1) flexible responses to the drastically changing environment
(2) improvement of management capacity
(3) assistance to SMEs expanding into new business fields
(4) collaboration between small enterprises

April 24, 2009

Research Office, Business Environment Department, Small and Medium Enterprise Agency