The paper 'The Role of Small and Medium Size Enterprises in Japan's Business System' is a great example of a Business Case Study. Following the economic boom in Japan’ s manufacturing sector in the 1970s and 1980s, the 1990s were a rather sharp contrast. There was a remarkably high recession throughout the next decade and a spillover effect to the first half of 2000. With the high investments taken to boost businesses, the years that followed in the 1990s were marked with high loan defaults that ultimately led to a reduction in productivity (Kuwayama, 2009, p. 31).
The purpose of this paper is to take an in-depth look at the role that the Small and Medium Enterprises have played over the years from the 1990s and the observable changes in the business models over the years. Further, the paper will analyze and assess the viability of Small and Medium enterprises in the future. This will involve assessing the possibility and chances of growth of the SMEs in the Japanese dynamic manufacturing sector. JAPAN’ S SUBCONTRACTING SYSTEM. SMEs have played a critical role in boosting the performance of the manufacturing sector in Japan’ s economy.
In the early 1970s, with the urgent need and limited resources to produce specialized parts, large firms turned to the SMEs luring them with the guarantee of buying the finished products thus providing a market for the small firms. The Japanese economic model in the small and medium enterprises has seen major changes from the earlier business models that were in place in the earlier years of the 1980s. The multi-tier subcontracting business system has proved to project huge leaps in the production efficiency in Japan’ s manufacturing sector (Manifold, 2007, p. 28).
Moreover, the SMEs have made it possible for continuous production in the manufacturing industry and thus greatly boosted Japan’ s business system. Through subcontracting, the core firms have also been able to shift costs such as factory overheads from the large enterprises to the SMEs (Manifold, 2007, p. 63). One of the distinguishing factors that marked the period of high growth was the manner in which large firms engaged small firms to assist in the supply of materials for these fast-growing firms.
This led to the subcontracting system where large and fast-growing firms such as Sony, Honda, and Toyota would engage these SMEs in the supply of labor and other parts in the manufacturing process (Schaede, 2008, p. 135). A keen study of Japan’ s manufacturing sector indicates that larger firms had a strong preference for subcontractors. This is not surprising considering the benefits associated with the subcontracting system. First, the subcontracting system led to the gradual growth of the SMEs as the buyer-supplier relationship became more concrete, and as the large corporations expanded further (Hwang, 2011, p. 58).
Moreover, the theory of cost economics clearly outlines the economic comparative advantage that was rendered as a result of engaging in subcontracting (Macintyre, 2011, p. 53). Additionally, large enterprises were able to focus on assemblage while the SMEs concentrated on developing specific components. Further, engaging subcontractors increased efficiency as it relied on the division of labor between the large enterprises and SMEs. The subcontractors also enabled large enterprises to focus more on their core manufacturing business which enabled faster production time. Increased specialization in production where different SMEs would be center on developing a single unit had the advantage of the production of high-quality products.
The fact that the SMEs had minimum labor costs due to their size advantage meant that they could source cheap labor from the rural areas. This was unlike the large enterprises where laborers demanded higher pay and to be part of unions. However, even with these advantages, that is important to note that in as much as the subcontracting system was effectively put in place, there were major hurdles in the system. One of these involved the reality that it was becoming increasingly difficult to depend solely on a supplier if the supplier had several buyers (Mazumdar& Sarkar, 2013, p. 42).
These prompted the companies to develop strategies that would invoke some level of commitment and loyalty from the supplier. This involved the larger companies obtaining larger shareholding in the supplier's businesses. In this way, the companies were able to enhance technological cooperation as well as the quality of the products supplied. This effective and prudent division of labor between the small and medium enterprises and the large enterprises has proved over the years to be a great contributor towards the competitive advantage that Japan’ s economy has gained especially in the automobile industry market (Haak & Hilpert, 2008, p. 34).
Cole, R. E. (2010). Japanese blue collar: the changing tradition.
Haak, R., & Hilpert, H. G. (2008). Focus China: the new challenge for Japanese Management. München, Iudicium.
Hatch, W., & Yamamura, K. (2006). Asia in Japan's embrace: building a regional production alliance. Cambridge [u.a.], Cambridge Univ. Press.
Hwang, G.-J. (2011). New Welfare States in East Asia Global Challenges and Restructuring. Cheltenham, Edward Elgar Pub.
Katzenstein, P. J., & Shiraishi, T. (2006). Beyond Japan: the dynamics of East Asian regionalism. Ithaca, Cornell University.
Kuwayama, M. (2009). E-commerce and export promotion policies for small- and medium-sized enterprises: East Asian and Latin American experiences. Santiago de Chile, Naciones Unidas, CEPAL, Internat. Trade and Integration Div.
Macintyre, J. R. (2011). Japan's technical standards: implications for global trade and competitiveness. Westport, Conn. [u.a.], Quorum Books.
Manifold, D. L. (2007). Japanese corporate activities in Asia: implications for U.S.-Japan relations. Washington, D.C., U.S. International Trade Commission, Office of Economics.
Mazumdar, D., & Sarkar, S. (2013). Manufacturing enterprise in Asia: size structure and economic growth. New York, NY, Routledge.
Nato Advanced Research Workshop On Innovative Superhard Materials And Sustainable Coatings, Lee, J., & Novikov, N. V. (2005).Innovative superhard materials and sustainable coatings for advanced manufacturing. Dordrecht, Springer
Organisation For Economic Co-Operation And Development. (2005).OECD territorial reviews. Paris, Organisation for Economic Co-operation and Development.
Schaede, U. 2008. Subcontracting: Globalization and supplier relations, in Choose and Focus: Japanese Business Strategies for the 21st Century. (Ithaca: Cornell UP) 134-152
Schaede, U., & Grimes, W. (2003). Japan's managed globalization: adapting to the twenty-first century. Armonk, NY [u.a.], East Gate Books.
United Nations. (2005). Implications of globalization on industrial diversification proccess and improved competitiveness of manufacturing in ESCAP countries. New York, United Nations.
Watanabe, S. 1999, A changing image of Japanese small entrepreneurs, in D. Dirks et al. (eds.) Japanese Management in the Low Growth Era: Between External Shocks and Internal Evolution. Berlin: Springer pp. 207-227.