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2011 Vol.1
Small and Medium-Sized Companies: Current Conditions and Prospects of Improved Management


Small and medium-sized companies continue to produce low profits and see a growing gap between them and large corporations.
This can be attributed to the fact that small and medium-sized companies rely heavily on domestic demand (notably, private consumption), which has been barely growing, whereas large corporations are more likely to receive the benefit of growth in foreign economies through increased exports. Moreover, it is highly possible that a lack of investment has hindered small and medium-sized companies’profitability as a result of their continued reduction of debt that had accumulated excessively during the bubble period.
The financial condition of small and medium-sized companies, however, has substantially improved. Financing to them has also become stabilized due to the fact that banking institutions, which are the major lenders, have become financially stable, and that changes have been made in the financial system. It can be said that small and medium-sized companies have mostly finished their balance sheet adjustments, which have lasted for a considerable time since the burst of the bubble, and are now ready to explore new frontiers. Their future will hinge on how they take advantage of their strengths in capturing new demand emerging from domestic and foreign macroeconomic changes.
In order to capture new demand or increase the ability to produce added value, each small or medium-sized company must strengthen its own management capability. As no quick solution exists, company executives, relevant financial institutions, and employees must independently do what they can, and the government should focus on supporting their efforts and create conditions that promote such efforts. If small and medium-sized companies can show, however small, their unique presence in their field of specialty and create new demand, the future will be bright for the Japanese economy.