Cabinet Decision on the 2025 White Papers on Small and Medium Enterprises and Small Enterprises

1．Direction of the 2025 White Papers on Small and Medium Enterprises and Small Enterprises

• The circumstances affecting SMEs and small businesses remain challenging due to increasing production and investment costs driven by the continued depreciation of the yen, rising prices, and the advent of rising interest rates in Japan, as well as a structural labor shortage. Meanwhile, in terms of growth in both regional and national economies, expectations are high for SMEs and small businesses, which account for 70% of total employment, to contribute to the growth of regional communities, economies, cultures, and to solving social issues. Through these initiatives, they are expected to play key roles in sustaining the foundations of local economies and addressing local needs.
• In order for SMEs and small businesses to overcome challenges in a rapidly changing environment and achieve growth and sustainable development, it is crucial for business owners to possess the managerial capabilities to understand their current circumstances and future directions, as well as to take appropriate action. These reports focus on these managerial capabilities and analyze them presenting case studies.

2．Key points in the reports

1. Trends among SMEs and small businesses

• Fiscal 2024 marked the first time in 30 years that Japan experienced rising interest rates, along with the continued depreciation of the yen and persistent price increases. These trends pose risks of downward pressure on profits for SMEs and small businesses, whose imports exceed exports and which tend to rely heavily on debt. Against this backdrop, the environment surrounding SMEs and small businesses remains challenging.
• The 2024 spring labor-management negotiations achieved the highest wage increases in nearly 30 years. However, the wage gap between SMEs and small businesses and large companies is widening. With the labor distribution ratio at SMEs already approaching 80%, there is little room for further wage increases. Meanwhile, persistent and serious labor shortages are driving many companies to raise wages to secure talent, even without improvements in business performance.
• Given these circumstances, cost-cutting strategies have reached their limits. Amid rising prices, interest rates, and labor costs, as well as persistent structural labor shortages, now is the time for businesses to shift toward a management approach focused on enhancing added value and labor productivity. This shift can be achieved through proactive capital investment, digitalization, and the promotion of appropriate pricing strategies and effective cost pass-through.

2. Effective initiatives for the growth and sustainable development of SMEs and small businesses

• To overcome these challenges and achieve growth and development, business owners must possess managerial capabilities to understand their current circumstances and future directions, and to take appropriate action. These white papers analyze managerial capabilities from the following three perspectives.
  1. Personal characteristics: A high level of motivation for growth, demonstrated through active engagement in reskilling and exchanges with other business owners across industries and broader networks, contributes to improved business performance.
  2. Strategic planning: Strategic management, which includes the formulation and execution of business plans, as well as appropriate pricing strategies that reflect differentiation and market conditions, facilitates improved business performance, along with wage growth and investment.
  3. Organizational and human resource management: Open management practices that emphasize the sharing of management philosophy, business performance, and managerial information contribute to improved business performance. Human resource management that values employees through measures such as wage increases, smoother internal communication, and improvements in working styles and workplace environments contributes to employee recruitment and retention.
• In addition to the above, SMEs must overcome growth barriers that vary depending on their sales scales. During the growth acceleration phase, companies should secure personnel who complement the business owner’s skills and break away from a one-person management structure by decentralizing managerial authority. Meanwhile, companies with annual sales 10 billion yen or more should secure management talent who can support organizational growth alongside the owner, as well as digital transformation (DX) personnel. Other effective strategies for further scaling up include proactive mergers and acquisitions (M&A), fostering innovation, and promoting global expansion.
• Small businesses, with limited business scales and market reach, must develop unique strengths through differentiation. They also need to foster self-sustaining management by enhancing management literacy through the formulation of business plans and other initiatives, and by establishing a cycle of review and improvement. Furthermore, small businesses are expected to take the lead in initiatives that address social challenges within their local communities.

Related Material

• Overview of the 2025 White Papers on Small and Medium Enterprises and Small Enterprises (in Japanese)(PDF:3,381KB)

Related Links

• The 2025 White Paper on Small and Medium Enterprises in Japan (in Japanese)
• The 2025 White Paper on Small Enterprises in Japan (in Japanese)
• White papers and statistics (in Japanese)

Division in Charge

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