Small and Medium-Sized Enterprises in Japan

Seminar Paper, 2003

13 Pages, Grade: 1,0



1. Introduction

2. Research Issues and Implications for the Small and Medium-sized Business Sector
2.1. Socio-cultural Success Factors for Japanese SMEs
2.1.1. Concept of the Corporation
2.1.2. The PRIMA (People and Relationship Issues in Management)
2.1.3. Education
2.2. Socio-cultural Disadvantages of the Japanese SMEs

3. SMEs Promotion Policies and the Government Roll

4. Conclusion

5. Appendix
A: Definition of Japanese SMEs
B: Situation of Japanese SMEs Excluding Primary Industry (2002)
C: Comparison with SMEs in EU
D: Trend of Establishment (1990-2002)
E: Trend of Employment (1990-2002)
F: Factors Determining International Success of Japanese SMEs
G: Position and Roll of Japanese SMEs

6. Reference


Japan is the second largest industry nation in the world. At the end of World War II Japan was in ruins and lagged far behind the industrialized and experienced western nations. However, it has managed to compete against almost all other countries in relatively short time without any appreciable help. The small and medium-sized enterprises (SMEs) as the main corporation form have played a crucial role for the country’s miracle and development of the modern economy after the war, as large companies were all destroyed, people have lost their livelihood and world markets were shrinkage. Today, the small and medium-sized enterprises are still serving as the driving and dominant force for the domestic economy. According to JETRO (2002), the total number of small and medium-sized enterprises in Japan are 6.51 million, which represent 99.1 % of the total businesses (excluding primary industry); SMEs’ contribution amounts to 81% of the total employment (excluding employment in the prime industries), 51.7% of the total shipment of manufacturing industry, 61% of the total sale in the whole sale and 78% in the retail. Clearly, the growth of the Japanese SMEs depends on several success factors, such as technologies, marketing skills, capital funds and effective resource management in the last four decades (Ohmea, 1982). However, some western countries like U.K. and France were using the same development strategy as Japan after the World War II, and their economies still declined dramatically competing with Japan. Therefore, there must be some special influential factors in the Japanese companies that are totally different from western models.

This paper focuses mainly on the socio-cultural development of SMEs in Japan with typical Japanese characteristics and analyses the influential yet distinguishing success factors and their implications for the Japanese SMEs. The paper will further approach the socio-cultural disadvantages of the existing systems and the government roll for Japanese SMEs and draw conclusion in the last section.


2.1 Socio-Cultural Success Factors For Japanese SMEs

2.1.1 Concept of the Corporation

The fundamental concept of the corporation is totally different from western models and derives from special historical conditions. Forced by necessity in the turmoil of the World War II, exceeding 100% of inflation and lack of job security, traditional SMEs acted more like communes rather than companies by providing lifetime employment, collective living accommodation and internal insurances. It is the well-known “Japanese system”. Ohmea (1982) pointed out, that “the Japanese system with lifetime employment, promotion by age and rather compliant company unions is a consequence of the post-war communal growth, not of any pre-programmed strategy.”

The most important feature of the SMEs’ communal corporation concept is that the concept really emphasizes people in the company. The whole corporation is more like a big family and each is regarded as a member rather than an employee. Ohmea (1982) noted further that, members of a Japanese company work mainly for the well-being of their people rather than for that of the shareholders and stakeholders as in western models. Furthermore, all members are absolutely equal. Even managers are frequently switched around so that everyone may have the chance at the presidency.

The permanent employment provides members both rights and obligations. It is clear that this system realizes not only unlimited rights of workers against dismissals, but also enables a company to retain qualified, skilled and experienced work forces. It helps to encourage and motivate the corporation work teams, as each member works lifelong for the same company and his fortunes will rise or fall all together with the company (Fürstenberg, 1974).

2.1.2 The PRIMA (People and Relationship Issues in Management)

The Japanese management style is strongly influenced by the two major religions: the “Shinto”, including worship of ancestors; and the “Buddhism”, implying co-exist and harmony in the day-to-day life.

The “Seniority Principle”, traditionally accepted by the Japanese management, derives mainly from the “Shinto”. Number of working years and age are determinative for wage, position and promotion of a member in the company (Fürstenberg, 1974). It serves as an important incentive for members to stay in a single company. Moreover, in Japan, only by staying with one company can a worker obtain privileges and it is seen as a main criterion for personal success (Begg, 2000). Job-hopping is very unpopular. Therefore, each member is aware that he is tightly linked to the company’s affair, his colleagues are lifetime colleagues and he should get along well with all of them. Since an individual may never fill all the specifications, he always needs help and support from the others. It is logically of great importance to remain good and long-term interpersonal relationships. The corporation organization is thus co-ordinated automatically and harmonically. An interesting phenomenon is that, a member prefers to stay in the company, even if he is overqualified for his position and his ability is beyond the job description. It might be a waste of human resource, but seen from another perspective, it also helps the company to adjust more quickly to environmental changes than many western companies, and thus reduces the possibility of company failure (Ohmea, 1982).

The Japanese society is complex, hierarchical and group-oriented, and so is it in the company (Takaura, 2002). Another feature of the Japanese companies - probably the most remarkable management principle - is the “Collective Decision-making”. Advantages are that, this style of decision-making requires everyone’s participation and responsibility, faults of a person is usually balanced by his counter-parties, and finally, group satisfaction will be achieved. The American observer, W. H. Brown, has highly praise the principle and stated that: “It is precisely this group orientation of the managers, their team work and the existence of harmonious personal relations, which give to Japanese organisations their strength and efficiency.” (Fürstenberg, 1974).


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Small and Medium-Sized Enterprises in Japan
University of Northampton
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Small, Medium-Sized, Enterprises, Japan
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Yanhui Zhang (Author), 2003, Small and Medium-Sized Enterprises in Japan, Munich, GRIN Verlag,


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