Japan’s Ministry of Economy, Trade and Industry said in a written response that their support for small and medium sized enterprises (SMEs) continues.
Japan changed the face of global manufacturing in the 20th century and hence believes that if the small companies of the country do not follow suit, the country is looking at a future that is dim.
The decline in population and faltering growth has left most of the small businesses and medium sized firms without any government help and close to free-funding. For the first time in 17 years, rising interest rates are causing concern among Japan’s enterprises, which account for the majority of the country’s jobs.
Hence, the government of Japan is willing to let small enterprises fail if their performance does not match the level. As a result, the situation currently calls for the quick replacement of slow enterprises with those capable of delivering growth. Though the officials predicted a minor growth, a swift shift in attitude occurred. The country aims to avoid insolvency while also preserving existing jobs.
This step is expected to assist Japan push their workers and investments while boosting wages for companies that are more productive in a rigid labour market. Changes are likely to take place through merger and acquisitions than through bankruptcies and layoffs. The government of Japan also set up help centres on M&A for small companies.
Japan’s Ministry of Economy, Trade and Industry said in a written response that their support for small and medium sized enterprises (SMEs) continues. The firms are required to be more profitable through investments and increased productivity. According to the ministry the bankruptcy rates have reached the pre-pandemic level. The time where the workers were changing jobs for better pay and work conditions.
“We will continue to closely monitor the situation to ensure bankruptcies do not increase at an inappropriate level that would cause the unemployment rate to rise,” it said.
Last year about 251,000 were “zombies” where their profits could not match their interests over a long period of time.
When the officials were asked if more companies would be allowed to fail, the senior officials agreed and said yes but also mentioned that the government “cannot say that explicitly”. As this would risk a public backlash. “By stealth, we are doing this, gradually doing this,” the official said. “Japan’s future will be bleak if we cannot raise productivity.”
An influential lawmaker from the ruling liberal Democratic Party, Akira Amari said that the small and medium-sized enterprises (SMEs) must not be recipients of the “welfare policies”. The government of Japan only aims to assist in boosting productivity, profits and wages to help them pay their taxes.
In order to support the SMEs during the pandemic, the government of Japan spent 63.2 trillion yen or $400 billion as per a report by the Finance Ministry in 2022. Among this spending, around $267 billion was disbursed as “zero-zero” loans, which required zero collateral and had zero-interest-payment grace periods.
Bankruptcies increased as the loans were due. Between January and June about 5000 companies went under loss and marked as the highest first-half tally in a decade.
A small company in Kakamigahara went into acquisition in the year 2020. For the small business’s acquisition, both the parties agreed to seek help from the consultant from the help centres set up by the government. The government covered half of the consultant’s fees. According to official estimates, 1,681 small businesses were bought with the help of these centres in the fiscal year ending March 2023.
Increasing prices is one strategy available to failing businesses, but it’s challenging to implement after years of deflation. As they worry about losing clients, business owners are hesitant to raise costs. Additionally, owners feel obligated to maintain businesses for the benefit of their staff, averting significant change.