1. SME Policy Lessons for Russia from Japan East Asia SME Development Experience Tsutomu Shibata Adviser, World Bank Institute tshibata@worldbank.org Creating A Conducive Legal & Regulatory Framework for Small and Medium Enterprise Development in Russia A Policy Dialogue Workshop, St. Petersburg, Russia September 14-16, 2003

2. 2 Definition IndustriesCapital Size (million yen) 1 Yen =0.26 R Number of Employees Manufacturing and Others 300 or less Wholesale100 or less Retail50 or less Services50 or less100 or less

3. 3 Share of SMEs SMEs Large Employees (Number) 69.5% 30.5% Companies (Number) 99.7 0.3 Sales 42.5 57.5 Value-added 51.6 48.4

4. 4 Characteristics of SMEs in Japan Subcontracting (multi-layers, competition, cooperation with main contractors) Clusters (different from Soviet, scale economies, technology spillover)

5. 5 Subcontracting Case for a Japanese Auto maker in the 1970s Engine Parts Body Parts others Total 1st tier 25 41 102 168 2nd 9121213 3312 5437 3rd496082212852241703 Total589794753139647308

6. 6 SME Policies Rationale –Market Failure Difference between large firms Wage (65%) Productivity (50%) Obstacles to start-ups Finance Personnel

7. 7 Changing Targets of the Era 1. Reconstruction Period (1945 to mid 1950s) Establishment of policy framework 2. High Growth period (mid 1950s to early 1970s) Rectification of dual structure Modernization of SMEs 3. Low Growth Period (early 1970 to 1999) Encouraging new start-ups and adjusting structural changes 4. Present (next page)

8. 8 Policy Concept ( Expectation for SMEs ) Creation of New Business Promotion of Market Competition Increase of Attractive Job Opportunities Revitalization of Regional Economy

9. 9 Current Targets of the New SME Basic Law (1999) Promoting Diverse and Vigorous Growth and Development of Independent SMEs 1. Strengthening Management Base of SMEs 2. Promoting Business Innovation and New Business Start-ups 3. Facilitating Adaptation to Economic and Social Changes

10. 10 1. Strengthening Management Base of SMEs Ensuring Managerial Resources Equipment Technology (Collaboration among Ind., Univ. and Gov., etc.) Information on Human Resources Establishing Core Support Center Rationalization of Transaction Ensuring Opportunities for Procurement from Government

11. 11 2. Promoting Business Innovation and New Business Start-ups Business Innovation (Technology, Equipment, Intangible Management Resources, etc.) Start-ups (Information Services, Training, Facilitating Fund Supply, etc.) Venture (R&D, Human Resources, Fund Raising through Stocks, Bonds, etc.)

12. 12 3. Facilitating Adaptation to Economic and Social Changes Provision of financial measures against disasters Corporate rehabilitation scheme

13. 13 Major Support 1 Funding (1) Three government SME financial institutions Japan Finance Corporation for Small Business National Life Finance Corporation Shoko Chukin Bank (2) Credit Supplementation System Credit Guarantee Corporations JASMEC (Reinsurance)

14. 14 Major Support 2 Business Support System SME Support Centers Regional/Prefecture/SME Venture Industry Associations & Chamber of Commerce (Prefecture/city)

15. 15 Major Support 3 Support for Technical Development 1.Support for Commercialization Collaboration among Academia, Industry & Government 2. Response to IT Revolution

16. 16 Check list for Russia 1. Implementation of SME laws 2. Organizational Set-up – Local too 3. Support System based on market mechanism 4. If some sub-sectors are priorities? 5. Fostering Entrepreneurs 6. Finance with capacity building done?

17. 17 Necessary Conditions for Policy Implementation Actual use of various tools (finance, insurance, etc) Time limit of each measure (not for long) Consensus/coordination mechanism (Gov vs. SME) Market mechanism, not direct intervention Improvement of Standard, Statistics

18. 18 Website for Japanese SME Law http://www.sme.ne.jp/policies/08_kihonhou/index. html