Global Niche Top Enterprises

First book to provide a systematic analysis of niche-top manufacturers in Japan

This book is about the so-called "niche-top enterprises" (NTEs) in Japan, which refers to small and medium manufacturing enterprises based in various parts of the country and achieving excellent business performance as leading companies in their respective regions. Based on findings from the systematic surveys of NTEs, the book provides an analysis chiefly from a strategic management perspective.

The Research Institute of Economy, Trade and Industry (RIETI) conducted a questionnaire survey of manufacturing NTEs in July and August 2012. In my capacity as a consulting fellow at RIETI, I planned and organized the survey as part of a RIETI research project on interactions between the business strategies of excellent small and medium enterprises (SMEs) and the external environment. Findings from the survey and their implications for policy making were published as a RIETI discussion paper on March 8, 2013.

I have been working on this survey research on NTEs since 2008, when I assumed the position of senior analyst for regional policy at the Ministry of Economy, Trade and Industry. In the background of this are major policy challenges that have emerged in recent years despite a significant boost in government support for excellent manufacturing SMEs since the late 1990s as exemplified by a program designed to promote the formation of industrial clusters. Government subsidies and other assistance for technology development are intended to enable an innovation cycle to run its course, namely, to create a new product for commercialization. In reality, however, there have been many cases where a new product has been developed only to find out that it has no market. This situation is being focused on as a major policy issue. Based on my belief that a clue to resolving this situation can be found by revealing the secrets of success of those companies that have developed new markets and maintained competitive advantage over a long period of time, I began researching NTEs which have shown particularly excellent performance.

Prior to the aforementioned questionnaire survey, I conducted in-depth interviews with the top managers of 31 leading NTEs in Japan. As a result, we found that those which exhibit particularly excellent performance—despite their differences in terms of industries, types of businesses, size, the number of years since foundation, and so forth—have surprisingly many things in common as observed in the patterns in which they; 1) develop new products by drawing on inspiration from the needs of potential users and utilizing technology seeds provided by other companies and/or universities; 2) seek to prevent imitation and differentiate their products so as to maintain competitive advantage over a long period of time; 3) penetrate into overseas markets in an orderly and self-paced manner with their non-price competitive advantage as a driver; and 4) create a network with other SMEs to generate innovations ("super new collaboration").

In other words, the interview survey found that successful NTEs have many things in common, suggesting a high likelihood for the presence of a group of particularly excellent companies that deserve to be referred to as "global niche-top enterprises" (GNTEs).

Based on those findings from the interview survey, the RIETI questionnaire survey was conducted over a greater number of NTEs—2,000 companies in total—across the country with an aim to confirm the presence of GNTEs and identify differences between them and other NTEs by means of statistical analysis. It was also expected that once such differences are identified, we would be able to derive policy implications for turning GNTE candidates into GNTEs.

Asking a broad spectrum of questions, the questionnaire was rather burdensome for the respondents, but we received responses from 663 companies, roughly one-third of the 2,000 NTEs that were selected as the sample. As a result of our analysis, it was confirmed for the first time by specific numerical evidence that GNTEs—defined as enterprises that have two or more niche-top products and with at least one of them having a certain share in overseas markets—exceed the average of NTEs in size as measured in terms of sales, etc., as well as in profit margins and other performance measurements. Furthermore, the questionnaire survey enabled us to confirm, both qualitatively and quantitatively, that the common characteristics of excellent NTEs identified in the survey interview match those of GNTEs in great detail. We were also able to identify differences between GNTEs and GNTE candidates as well as the background of such differences.

This book is a compilation of all those findings derived from my research of NTEs over the past several years.

It is comprised of three parts. Part I is case studies. Based on an interview survey of 40 leading Japanese NTEs (the 31 NTEs interviewed in 2011 prior to the questionnaire survey plus nine additional enterprises), characteristics commonly observed in those excellent enterprises are identified. The cases of the 40 enterprises are presented as illustrative examples in a cross-sectional fashion. Chapters 1 through 5 provide detailed discussions with each chapter focusing on one of the aforementioned common characteristics such as the pattern of product development, intellectual property management and differentiation strategies, and so forth.

Part II is an analysis of questionnaire survey findings. Using various statistical analysis methods, it provides a comparison between NTEs and non-niche-top manufacturing SMEs as well as that between particularly excellent NTEs and other NTEs. Discussions in Chapter 6 through 8 are constructed in such a way to illustrate differences between GNTEs, which are the most successful NTEs, and those NTEs in the second-tier group.

Part III starts with a historical account of NTEs that have achieved development unique to Japan so as to illuminate their peculiarities. Then, based on the analytical findings and observations heretofore made and by focusing on the notable characteristics of highly successful GNTEs, it considers policy implications, for instance, as to what support measures are needed to transform other NTEs into successful ones.

The analysis of findings from the RIETI questionnaire survey in Chapters 6 through 8 and the discussion on necessary policy responses in Chapter 10 are based on my discussion paper published by RIETI in March 2013. However, I have made a thorough review of the paper and rewrote significantly in an easier-to-understand way, mainly in sections that are considered to be particularly important.

Meanwhile, the detailed accounts of the case studies of the 40 leading NTEs in Chapters 1 through 5 are published for the first time. Also, with the help of enterprises interviewed, a number of relevant photos and conceptual diagrams are provided to help readers get a picture of the specific cases discussed. The text is original, and all chapters including Chapter 9 and Epilogue are written by me.

As such, this book provides systematic discussions on NTEs ranging from the assessment of their current status and the analysis of their characteristics to necessary policy responses identified through such analysis. The basic data analyzed for this book are those that have been captured quantitatively for the first time through the questionnaire survey introduced in this book. With no book of this kind yet to be published, I believe this is the first ever such attempt in Japan.