1. session 1 shuji uchikawa (2)

8/10/2019 1. Session 1 Shuji Uchikawa (2)

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The Dynamism of SMEs

in Developed and Developing

Countries

Shuji Uchikawa,IDE-JETRO


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Classification of SMEs

Small and Medium Enterprises (SMEs) aredefined by size of employment and fixed assets.

The character of SMEs is heterogeneous.

Cottage industries are important from the social

policy and rural development perspectives.

The target of policies is SMEs with modernproduction method.

Entry of SMEs is important for competition and

transformation of industrial structure.

Cottage industries and Supporting industries


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Why are SME policies necessary?

Weakness of SMEs

SMEs are weak in financial base and bargaining

power with large firms.

Dynamism of SMEs

SMEs can grow to large firms. From old

viewpoints, growth of SMEs was not expected.

SMEs diversify industrial structure.

SME policies need to be reviewed from theindustrial policy and regional policy standpoints.

SME policies should think much of entrepreneurship of

SMEs.


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Profitability of SMEs in Japan

Capital share

(JPY million)

1953 to

1959

1960 to

1964

1965 to

1969

1970 to

1974

1975 to

1979

1980 to

1984

2 to 5 22.4 32.4 30.7 34.6 22.2 16.1

5 to 10 20.9 34.1 31.4 35.4 23.0 17.8

10 to 50 21.2 28.7 31.2 35.5 24.4 20.9

50 to 100 18.7 25.3 26.7 30.4 23.1 24.4

100 to 1000 13.1 20.5 23.3 25.6 22.0 22.3

Avobe 1000 16.2 19.8 21.3 17.8 19.5

Source: Toshiro Miwa (ed), Japanese SMEs, 1989

Size-wise Return on Equity (%)

Exit ratio of SMEs is high. But SMEs are more profitable

than large firms.


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Present Conditions of Japanese SMEs

Number of establishments declined due to recession

and unavailability of successors.

The streamlining of procurement by the large firms

led to the selection of only the efficient

subcontractors (SEMs).

Trends of Manufacturing Establishments Employing More Than Tree

Employees, According to Size

Source: Government of Japan, Ministry of Economy, Trade, and Industry, Census of Manufacturers

(%)

Size (Number of

employees)

Number of

establishment

Number of

employees

Value added

4 to 29 -3.7 -3.1 -4.130 to 99 -1.2 -1.2 -2.5

100 to 299 -0.2 -0.1 -2.0

300 and avobe 0.5 0.7 -1.3

All -3.2 -2.1 -2.1


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Change of SME Policy Concept in Japan

Amendments of the Small and Medium Enterprises Basic

Law in 1999

Before: rectifying gap between large firms and SMEs

Government forced business models like modernization.

After: promoting diverse and vigorous growth of SMEs Private sector initiatives are being facilitated.

R&D activities are being encouraged. SMEs have a

competitive advantage in niche areas.

Municipal governments can play an important role inpromoting SMEs.

The collaboration among SMEs was effective for the joint

development of unit component in machinery industry.


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Four Categories of SMEs in Developing Countries

SMEs in Supporting Industries related with machineryindustry: Manufacturing components and parts ofelectric machinery and automobile etc

SMEs in export-oriented: Manufacturing labourintensive products like apparel and footwear

SMEs in domestic market oriented industries:Manufacturing daily necessities such as food, apparel

and general merchandise Cottage industry:

Manufacturing daily necessities on the basis oftraditional production method


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Effects of Subcontracting

Subcontractors acquire

relation specific skill through

transactions with parent

companies. Parent companies can save

procurement costs

Improvement of general

technological capabilities

LargeEnterprises

Subcontractors

Cost reduction

Quality Control

Prompt delivery

Relation specific skill

8


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Export-oriented Industry

Apparel and footwear areleading industries

Exporting to USA andEuropean markets

Quality

Attractive Design

Low wage Generalized system ofPreference

Foreign buyers

Local firms

Condition

Technical assistance

Guidance of

management

Cottage industry SME canbecome exporters

In some countries, large firms dominate export-oriented

industry


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Domestic Market-oriented Industry

Indigenous SMEs are producing daily necessitiessuch as food, apparel and general merchandise

Vulnerability of management

Low investment in equipment and lowtechnological level

Dependence on cheap labour force

Less access to bank loan and dependence oninformal and traditional financial markets

Character

Domestic demand expand, as life standard

rises


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Cottage Industry

Cottage industry is producing food processing, caneand bamboo work, ceramics, lacquer ware,

embroidery and textiles on the basis of traditional

production method.

Cottage industries may lose the present positiondue to low productivity.

Cottage industries can increase exports.

example: Handicrafts

One village, One Product

Chance

Marketing is important


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Characters of Four SME Groups

Main playerMain

CustomerTechnology

Possibility ofbackwardlinkage

Supporting industryForeign SMEs

Local SMEsMNEs High High

Export-orientedindustry

Foreign SMEsLocal SMEs

Foreignbuyers

High Low

Domestic market-

Oriented industryLocal SMEs

Domestic

marketLow Low

Cottage industry. Local SMEsLocal

marketLow Nil


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Export-

oriented

Industry

Export

Domestic

market

Hightechnology

Lowtechnology

Supporting

Industry

Cottage

Industry

Domestic

Market-

Oriented

Industry


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Technological Gap among SMEs

SMEs cannot involve in subcontracting easily.

1. Their standard of technology and management skills does not

reach the minimum requirement to reduce production costs

constantly, improve quality of products, and keep up with the

delivery schedule.

2. Their investment in equipment is too low.

Best Practice: Motorcycle industry in Vietnam

1. Japanese MNE launched a new cheap model to compete with

products made of components imported from China.

2. Japanese and Taiwanese first-tier suppliers to replace

imported components with locally sourced ones.

3. The second-tier local supplier were originally manufacturers

of replacement parts.

1. session 1 shuji uchikawa (2)

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