Small firms in Japan face a growing need for self-reliance, a need to shed or trim their status as permanent subcontractors for large companies. This is especially true of small manufacturers. With domestic production moving increasingly to low-cost overseas locations, they have no choice but to develop their own products and markets.
This year’s government report on small companies describes them as the “standard bearer of economic structural reform.” It expects them, rightly, to play a leading role in breaking the old customs and practices that are stifling innovation in much of the nation’s industrial sector.
A nation’s industry consists of both large and small companies. But big business represents, numerically, only the tip of the corporate pyramid, which is supported by a vast number of small companies. The presence of enterprising and vigorous small firms is an essential tonic for the rigid economic structure dominated by big business.
The success stories of Sony and Honda, which have developed from back-street factories into world-class manufacturers, illustrate the essentialness of small-business entrepreneurship. They also convey a vital message: Small business should be promoted as an integral part of economic policy, not as a “save the weak” social policy.
In this respect, the United States offers valuable lessons. In the 1980s, President Ronald Reagan’s administration — which sent America’s first small-business white paper to Congress in 1981 — promoted the sector through tax cuts and other incentives. As a result, legions of high-tech startups sprang up across the country, particularly in Silicon Valley, touching off waves of technological innovations and management reforms and creating numerous jobs in the process.
In Britain, too, Prime Minister Margaret Thatcher’s government pursued a well-defined policy of encouraging small-business activity. It cast small enterprises in a new role as an engine of growth, replacing unwieldy and inefficient state-owned enterprises. That policy reinvigorated the British economy.
By contrast, Japan’s economy has remained in the doldrums ever since the asset-price bubble burst at the beginning of the 1990s. Complacent about its past successes, the nation has neglected to adapt its outdated systems to reality. Corporate giants, having long pursued the economies of scale through mass production, find it difficult to move quickly. They suffer the “big business disease” — the play-it-safe mentality that prevents them from flexibly responding to change.
Size matters, for better or worse. Small is beautiful if it means being able to make quick decisions, develop new technologies and products at relatively low risk and venture into new lines of business. The flip side is a chronic shortage of funding and a high chance of failure and bankruptcy.
But entrepreneurship boils down to taking risks. Indeed, this challenging spirit is the driving force of free enterprise. In this regard, the latest report provides an interesting analysis of the behavior of Japanese and American small-business managers who have suffered bankruptcy. Simply put, Americans are much more positive-minded than Japanese.
A survey finds that in America about five in 10 executives staged a comeback but in Japan only one in 10 did so. Of those who did not make a comeback, more than 70 percent in America said they wanted to start a new business, compared with less than 40 percent in Japan.
These findings show clearly that American entrepreneurs are far more likely to embrace new challenges than their Japanese counterparts; for Americans, failure is not the end of everything but an opportunity to start over. This may reflect a difference of character between Japanese and Americans, but it cannot be lightly dismissed as a given.
To create a vigorous economy Japan needs to develop a system, similar to rematches in the world of sports, that allows failed entrepreneurs to try again. But systems alone are not enough. It is also necessary to foster a social climate, or a collective psychology, that does not view corporate failure as an indelible disgrace.
The biggest headache for small-business entrepreneurs is that it is difficult to raise money. This is particularly the case with those planning a comeback or a new venture. Public banks should be more willing to help them. For example, bankrupt firms that have a good chance of survival should be assisted under the “debtor in possession” system that permits continued lending without a management reshuffle. Private banks, their bad-debt problem notwithstanding, also should help them. Some of them might even become Hondas or Sonys.
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