Japan Press Weekly

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2017 August 2 - 8 [ECONOMY]

Hollowing out of domestic SMEs accelerated

The 2017 “White Paper on Manufacturing Industries” which the Abe government approved in June in a Cabinet meeting indicates that domestic manufacturing is emptying out while more and more large corporations are expanding their overseas operations.

The white paper is an annual report on measures the government took for manufacturing businesses as a country’s key industry.

Most of the nation’s manufacturers are small- and medium-sized enterprises (SMEs) as shown by the fact that SMEs accounted for more than 99% of all 415,000 manufacturing firms, as of 2014.

SMEs in number and their headcount have been decreasing year after year. In 2004, there existed about 570,000 entities. However, the number dropped by as many as 90,000 to 480,000 in 2014. Meanwhile, the total number of workers employed at SMEs in 2014 was about 6.67 million, down 780,000 from 2004 when about 7.45 million people worked for SMEs.

On the other hand, major manufacturing companies are shifting their production bases abroad. The overseas production ratio is on an upward trend four years in a row. The proportion went up to a record high of 25.3% in 2015 from 16.2% in 2004.

Large firms are expanding their overseas production as a way to avoid the influence of currency fluctuations. Along with a decline in production at home and decrease in exports, domestic demand has been decreasing.

Abe with his policy of monetary easing sought to boost the depreciation of the yen, improve the business environment of large entities, and bring their production back to Japan. However, amid the sluggish domestic demand, this policy only helped large companies to further amass their internal reserves. Low domestic demand has brought about a “vicious cycle of economic regression”.

To get out of this negative spiral, it is necessary to boost domestic demand. Leaving the hollowing out of SMEs as it is would further undermine Japan’s industries and its jobs.