1. Japanese SMEs and Trade Liberalization Kazuhiko Yokota Waseda University APEC Symposium, August 16, 2011, Taipei

2. Characteristics of Japanese SME Share of SME in All Firms ALL Industry No. of FirmsNo. of EmployeesSalesValue-added 20020.840.430.28 20090.850.480.310.34 Manufacturing No. of FirmsNo. of EmployeesSalesValue-added 20020.820.380.210.24 20090.830.390.220.27

3. Characteristics of Japanese SME Ratio of SME to LSE (per Firm) ALL Industry No. of PlantsNo. of EmployeesSalesValue-added 20020.2680.1470.076 20090.2940.1600.0780.091 Manufacturing No. of FirmsNo. of EmployeesSalesValue-added 20020.2720.1340.0600.071 20090.2830.1350.0590.076

4. Characteristics of Japanese SME Labor Productivity ALL Industry (million yen) Sales/EmployeesValue-added/Employees SMELSESMELSE 2002 36.069.66.512.6 2009 30.362.56.010.6 Manufacturing (million yen) Sales/EmployeesValue-added/Employees SMELSESMELSE 2002 28.764.90.2 200928.264.50.2

5. In sum (1) 1.More than 80% of firms in Japan are SMEs. 2.Around 40% of employees are hired by SMEs. 3.20-30% of sales and value-added are produced by SMEs.

6. In sum (1) 4.SME has only 6-9% of sales and value-added to those of LSE. 5.Labor productivity of SME is much lower than that of LSE.

7. Destination of FDI by Firm Size (%) AllSME Total100.0 China24.755.9 USA14.67.6 ASEAN16.215.4 (Thailand)7.68.7 HongKong5.33.1 (Singapore)4.61.8 Taiwan4.01.5

8. Share of Foreign Subsidiaries by Industry (%) 20042009 LSESMELSESME Manufacturing 67.9538.7544.1055.90 Textiles 2.972.701.654.65 Chemicals 9.215.075.863.80 General Machinery 5.905.165.537.94 Electrical Machinery 5.323.612.993.45 ICT Equipment 10.485.315.355.06 Transportation Equip. 14.933.869.697.05

9. Share of Foreign Subsidiaries by Industry (%) 20042009 LSESMELSESME Non-manufacturing 32.0561.2555.9044.10 Wholesale 15.3930.4327.9324.71 Retail Sales 2.283.702.62.9 Service 3.247.787.55.8

10. Sales/Employees of Foreign Subsidiaries by Firm Size (million Yen) 20042009 LSESMELSESME Manufacturing 30.06.423.34.8 Textiles 12.72.47.31.8 Chemicals 51.011.442.911.0 General Machinery 26.412.219.16.4 Electrical Machinery 21.15.916.04.5 ICT Equipment 18.65.215.44.4 Transportation Equip. 45.49.934.07.4

11. Sales/Employees of Foreign Subsidiaries by Firm Size (million Yen) 20042009 LSESMELSESME Non-manufacturing 162.633.090.014.9 Wholesale 295.671.1166.160.6 Retail Sales 45.415.425.515.4 Service 38.511.228.21.2

12. In sum (2) 1.A 56% of FDI by SMEs has been invested in (mainland) China which is much higher than the Japanese average (25%). 2.Main purpose of FDI by SMEs is to seek for the lower cost of production.

13. In sum (2) 3.SMEs have raised the share of manufacturing FDI in 2000s. 4.General machinery and transportation equipment have larger share of FDI by SMEs. 5.Sales per employees in both SME and LSE have been declining in all sectors in 2000s.

14. Bottlenecks for Japanese Firms 1.Yen appreciation 2.Shrinking domestic market 3.Natural disaster in 2011 (Electricity shortage and damages of plants) Japanese firms want to get out of Japan.

15. Problems that Japanese SMEs face in Host Countries 1.An increase in production cost (wage rate). 2.The shortage of capable employees. 3.Regulations and frequent modifications to the legal systems. 4.Violation of patents 5.High retreat rate 6.Too much concentration in China

16. Problems that Japan faces 1.Hollowing-out in industry. SMEs often shut down local plants when they invest abroad. Loss of employment Discontinuity of technology and skills.

17. Possible Solutions…. 1.SMEs should export because they can keep domestic employment and technology. Need larger markets Trade liberalization would help.

18. Possible Solutions…. 2.Avoiding cost competition with Asian countries, Japanese SMEs should focus on the production of higher value-added products. not only technology but also branding

19. Possible Solutions…. 3.Government policy should support SME’s exporting with an appropriate branding strategy and support acquisition of patent, trademark, and design in the world markets.

20. Thanks for your attention.