Japans Policy on Small and Medium

Enterprises (SMEs) and Micro Enterprises

Small and Medium Enterprise Agency,

Ministry of Economy, Trade and Industry

September 2013

Contents

1

1. Overview

(1) What are SMEs? (2) SME Support Systems (3) SME-related Budget

2. Major SME Policies

(1) Supporting SMEs (2) Creating Jobs

3. Recent Revisions to Laws

4. Headquarters for the

Growth of Small and Micro

Enterprises

1. Overview

(1) What are SMEs?

(2) SME Support Systems

(3) SME-related Budget

2

3

1. (1) What are SMEs?

Accounting for 99.7% of all companies, 70% of all employees, and more than 50% of all added value (manufacturing industry) in Japan, SMEs form the very basis of the

Japanese economy.

Even such large corporations as Toyota, Honda, and Sony started out as small backstreet factories, and the revitalization of SMEs can promote competition in the

marketplace, creating new industries and becoming the motive force behind economic

restructuring.

The majority of the products of large corporations consist of components from SME subcontractors; thus, it is the hidden strength of SMEs that underpins trust in

Japanese products.

The economies of Japans provincial areas are supported by the activities of SMEs mainly in the service industry, retail trade, and the construction industry and SMEs

play a part in revitalizing local economies and boosting employment opportunities.

1. (1) What are SMEs? - Definition -

Definition in the SME Basic Act

Definition in the Corporation Tax Act

SME operators of which, micro enterprises

Industry Type Stated capital Employees Employees Stated capital

Manufacturing 300 million or less 300 or fewer 20 or fewer

100 million or less

Wholesale 100 million or less 100 or fewer 5 or fewer

Service industry 50 million or less 100 or fewer 5 or fewer

Retail 50 million or less 50 or fewer 5 or fewer

SME Basic Act (enacted 1963) SME Basic Act (revised 1999)

Basic Principle

Rectifying disparities between companies

in terms of productivity, etc.

Image of SMEs

Socially vulnerable (stereotypical perception)

Diverse, dynamic growth and development

by independent SMEs

Basic Principle

Basis of the Japanese economy, source of dynamism

Image of SMEs

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5

Small and Medium Enterprise Agency established (1948) SME Basic Act enacted (1963)

SME Basic Act revised (1999) SME Basic Act revised (2013)

Preventing the concentration of

economic power, developing

sound SMEs

Two-tier structure: rectifying disparities

between SMEs and large corporations

Supporting motivated, capable

SMEs

Shoko Chukin Bank established (1936)

SME Credit Insurance Act (1950)

Chambers of Commerce and Industry Act (1953)

SME Manufacturing Enhancement Act (2006)

Japan Finance Corporation Act (2007)

Credit insurance system expanded (2007)

Antimonopoly Act (1947)

Credit Guarantee Association Act (1953)

National Life Finance Corporation (1949)

SME Modernization Promotion Act (1963)

Promotion of specific industries (Act on Temporary Measures for the Promotion of the Machinery Industry (1956))

Commerce and Industry Association Act (1960)

MARUKEI (managerial improvement) loans for small businesses introduced (1973)

SME Cooperatives Act (1949)

SME Business Conversion Act (1976)

SME Association Organization Act (1957)

SME New Business Activity Promotion Act (2005)

Small Business Promotion Corporation established (1967)

Shoko Chukin Bank Limited Act (2007)

New Partnerships support (2005)

Organization for Small and Medium Enterprises and Regional Innovation, Japan established (2004)

Blue return system (1949) SME Universities (1980)

Small Business Investment Company (1963)

SME Consultation Centers established (1948)

SME Consultant Registration System (1953) Loans for modernizing SMEs (1966)

Basic

Principles

Monetary

Policies

Organization

Policies

Promotion

Policies

Small Enterprise Mutual Relief Projects Act (1965) Subcontract Act (1956)

Act on Ensuring the Receipt of Orders from the Government and Other Public Agencies by Small and Medium-sized Enterprises (1966)

1. (1) What are SMEs? Changes in Policy

The basic principles of policy on SMEs have been revised according to the needs of the times and support measures have

been implemented and enhanced, e.g. policies on finance, promotion, guidance, and unionization.

Postwar reconstruction period

(1945-)

Rapid economic

growth period

(1955-)

Stable growth period

(1970-)

Transition period

(1989-) Present

Local Shopping Area Activation Act (2009)

Shopping District Promotion Association Act (1962)

Certified management improvement support providers (2012)

Act on Mutual Relief System for the Prevention of Bankruptcies of SMEs revised (2010)

Small Enterprise Mutual Relief Projects Act revised (2009)

Promotion of Business Activities by Small and Medium Sized Enterprises Utilizing Regional Resources Act (2007)

Financing support for overseas expansion (2012)

Act on Special Measures for Industrial Revitalization (2009)

Industrial Revitalization Act revised (2011)

Collaboration Between SMEs and Agriculture/Forestry/Fishery Business Act (2008)

Japan Finance Corporation for Small and Medium Enterprise

(1953) established

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Number of companies (4.2 million)

No. of employees

(42.73 million)

METI, Census of Manufactures (2009)

Ministry of Internal Affairs and Communications, Establishment and Enterprise

Census (2009) (edited version)

SMEs

Approx. 4.19 million

99.7%

Large enterprises

Approx. 12,000

0.3%

SMEs

Approx. 40.6

trillion

50.6%

Large

corporations

Approx. 39.7

trillion

49.5%

SMEs

Approx. 28.27 million

66%

Large enterprises

Approx. 14.46

million

34%

1. (1) What are SMEs? Number of Companies and Employees, etc.

SMEs account for 99.7% of Japans 4.2 million companies. They account for 60% and more than 50% of

total employees and total value added (manufacturing industry), respectively.

Value added

(manufacturing industry)

80.3 trillion

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SMEs (4.2 million)

1. (2) SME Support Systems

SME policies are mainly coordinated by the Small and Medium Enterprise Agency and implemented by a number of

related organizations working in partnership.

- Management advice

- Holding courses

- Providing information

- Dispatching experts, etc.

Hum

an r

esourc

e

dev

elopm

ent

and

trai

nin

g p

rogra

ms

Credit Guarantee

Corporations (52)

Loans Credit

guarantees

Small and Medium Enterprise Agency

Planning and formulation of policy on SMEs Regional Bureaus of Economy,

Trade and Industry (8)

SME

Universities (9) Prefectures (47)

Planning and formulation

of local policy on SMEs

SME Support Centers Prefectures, etc. (47)

Each region (13) *Management improvement support

providers 51

Budget

Budget

Support

for

inte

rnat

ional

izat

ion Insurance

Budget Budget

Budget

As of end July 2013

Certification

Cooperative efforts,

e.g. dispatching

experts

Management improvement support providers

(certified support service providers)

(13,459)

Professions

Existing SME

supporters

Financial

institutions

Application

- Management advice

- Holding courses

- Providing information

- Dispatching experts, etc.

Budget

Organization for Small

and Medium

Enterprises and

Regional Innovation,

Japan (SMRJ)

Headquarters (1),

regional head offices (9)

Japan External Trade

Organization (JETRO)

Headquarters (1), JETRO

Osaka (1), domestic offices

(37), Overseas offices (73),

Institute of Developing

Economies (1)

Chambers of Commerce and Industry (514)

*Management improvement support providers 210

Commercial and industrial associations (1,719)

*All certified as management improvement support

providers

Shoko Chukin Bank Head Office (1), branch offices (100)

*Certified as management

improvement support providers

- Analysis of management situation

- Support in formulating business plans

- Implementation of business plans, etc.

Japan Finance

Corporation Head Office (1),

branch offices (152)

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1. (2) SME Support Systems

Minister of Economy,

Trade a