RIETI Report June 2005

Supporting Business Start-ups <RIETI Featured Fellow> YASUDA Takehiko

Greetings from RIETI

On June 23, 2005 RIETI will host a Policy Symposium entitled "Lifecycle of Small and Medium Enterprises and Revitalization of the Japanese Economy." The recovery of the Japanese economy will depend, in large part, on the revitalization of the small and medium-size enterprise (SME) sector, which continues to provide the bulk of employment in Japan and plays an important role in the competitiveness of key industries. Ahead of the Symposium, "RIETI Report" spoke with RIETI Faculty Fellow Takehiko Yasuda about the progress the financial sector has made in supporting SMEs in their post-bubble recovery, SME policy issues, and what remains to be done to revitalize the sector.

RIETI Fellows Now

RIETI Faculty Fellow Takehiko Yasuda is a professor at Toyo University's Faculty of Economics. He has held a number of important academic and governmental appointments, including director of the Research Office of the Small and Medium Enterprise Agency at METI, professor of economics at Shinshu University, and visiting fellow at Stanford University's Asia-Pacific Research Center. From 2002 to 2004 Professor Yasuda authored the "White Paper on Small and Medium Enterprises in Japan," published by the Small and Medium Enterprise Agency. His other important publications include "Ministry of International Trade and Industry" in Encyclopedia of Japanese Business and Management, (Allan Bird, ed.), (Routledge: 2002); and "Firm Growth, Size, Age and Behavior in Japanese Manufacturing," in Small Business Economics, (Springer Science+Business Media: 2005).

Interview

RIETI Report: What were the most difficult problems facing small businesses during your tenure at the Small and Medium Enterprise Agency?

Yasuda: The first issue taken up by the cabinet of Prime Minister Junichiro Koizumi as part of its structural reforms when it took office in 2001 was the prompt disposal of nonperforming loans by financial institutions. But this led to two problems for small and medium-sized enterprises. First, as financial institutions proceeded with loan disposal there was the need to ensure that the adverse effects on SMEs, which are largely dependent on banks for their financing needs, would be minimal. Second, the Japanese economy as a whole would temporarily see a slight contraction as a result of structural reforms, so there was the need to make sure that capable SMEs would not collapse without being able to display their strengths.

RIETI Report: How far has Japan come in establishing a financial system that suits SMEs?

Yasuda: Although progress is still insufficient, there have been many new developments among financial institutions in the past year or two. For example, major banks have begun coming out with loan products designed especially for SMEs. Since large banks have transactions with a very large number of companies, they have introduced systems to screen loan applications promptly and decide whether to extend a loan based on the data they have accumulated from their dealings with corporate customers, employing methods similar to those used for consumer financing and housing loans. Meanwhile, credit unions and regional banks are making considerable efforts to extend loans based on information they possess about individual companies through relationship banking -- the deep, long-term relationships they have built up with these firms.

RIETI Report: One of the reasons Japan's business start-up rate is lower than that of other countries may be the lack of a solid foundation to nurture entrepreneurs. What sort of steps are necessary to remedy this problem?

Yasuda: I think it comes down to the need to promote entrepreneurship education. But at the same time, it is important to have role models -- people who are successful in starting up businesses -- become widely known among the general public. A few months ago there was the "Horiemon Incident,'' where Takafumi Horie, president of Internet start-up livedoor Co., Ltd. made headlines in his bid to take over radio broadcaster Nippon Broadcasting System Inc. I think that one way for entrepreneurship to flourish is to have people like him, who have gained success by starting new businesses, become better known.

One thing that I have become more aware of through teaching at a university is that what is important in education is how passionate the students are about absorbing what they are being taught. Just providing entrepreneurship education will not ensure that new companies will sprout up. It is more important for students to have the desire to launch a new company. As such, I think we first need role models, and for the activities of those people to become widely known.

RIETI Report: In order to grasp the actual business start-up rate in Japan, you propose that tax statistics be reviewed and utilized more effectively (see Aug. 3, 2004 column). How can such statistics be used to develop SME policies that support business start-ups?

Yasuda: There are several significant points in using tax statistics. First, they make it possible to accurately grasp start-up activities. Most business start-ups are transient, so to speak. They are the most difficult type of businesses to monitor. However, this can be done at a very low cost by utilizing tax statistics. A wide-ranging survey of start-up activities is very expensive but if we use tax statistics we can grasp the situation without a huge cost burden, simply by slightly changing the way items are currently shown. This can be a very important and low-cost way to collect information for both fiscal authorities and the Japanese economy. Using tax statistics would also make it possible to provide data such as which sectors are seeing increases in start-up activity from year to year, and how those firms have fared over time -- the statistical term is called "panel data" -- and with this data it becomes possible to see how companies have developed after their establishment.

RIETI Report: Please tell us about the highlights of the upcoming RIETI Policy Symposium, "Lifecycle of Small and Medium Enterprises and Revitalization of the Japanese Economy,'' which will be held on June 23.

Yasuda: When we speak of studies on small and medium enterprises, we traditionally tend to think of such firms as a single category and conduct research on how this group of companies has changed and developed. For example, typical studies have focused on how SMEs in a certain sector have contracted or expanded, or the operational trends within a group of SMEs in a certain industrial cluster. Another method of research is to use several SMEs as case studies and attempt to develop some sort of general implications from them.

The problem with the first type of research is that it is difficult to determine the movements of individual SMEs within the group; in the case of the latter type of research, it is hard to draw broad conclusions from a few SMEs. In the paper I plan to present at the upcoming symposium, I try to arrive at something universal by collecting data from a large number of individual firms -- several thousand or even more -- through questionnaires, and processing the data statistically. This is something akin to epidemiology in medicine. I believe this type of research can offer much broader conclusions than can be derived from studying individual firms. At the same time, this approach allows us to better understand what individual firms need than do studies that deal with SMEs as a group. Even in terms of government policies, the previous Basic Law on Small and Medium Enterprises treated SMEs as a group. But now, under the new Basic Law on Small and Medium Enterprises, the government focuses on assisting smaller businesses that have motivation and ability. In other words, the government targets individual firms. I believe that such trends in policymaking coincide with the direction of RIETI's research.

The program for the RIETI Policy Symposium "Lifecycle of Small and Medium Enterprises and Revitalization of the Japanese Economy" is available at:
http://www.rieti.go.jp/en/events/05062301/info.html

To read Professor Yasuda's paper, "Business Succession and the Performance of Post-succession SMEs," go to
http://www.rieti.go.jp/en/publications/summary/05040002.html

For your reference
Hot Issues: Venture & Small and Medium sized Enterprises
http://www.rieti.go.jp/en/special/hot-issues/categories/venture.html

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EVENTS INFORMATION

Brown Bag Lunch Seminars

Coming Soon
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All BBLs run 12:15 - 13:45, unless otherwise stated.

06/21 KUSAKABE Satoshi (Director, Industrial Organization Division, Economic and Industrial Policy Bureau, METI)
Title: "M&A Rules in Japan - Proposal toward the Establishment of Rules for a Fair Corporate World -"

06/29 KIMURA Shigeki (Director, Office of the Vice Minister of Finance for International Affairs, Ministry of Finance)
Title: "On Foreign Bond Investments as a Recycling Channel for Japan's Current Account Surplus"

For a complete list of past and upcoming BBL Seminars, http://www.rieti.go.jp/en/events/bbl/index.html


Fellow titles and links in the text are as of the date of publication.

For questions or comments regarding RIETI Report, please contact the editors.

RIETI Report is published monthly.

This month's featured article

Supporting Business Start-ups <RIETI Featured Fellow> YASUDA Takehiko

YASUDA TakehikoFaculty Fellow, RIETI

Event Information

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Fellow titles and links in the text are as of the date of publication.

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RIETI Report is published monthly.