Japanese Smes Going Global: Lessons from “German Mittelstand”

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United International Business Schools Executive MBA, Brussels Campus “International Economics”

Japanese SMEs going global: Lessons from “German Mittelstand”

By Pascal Gudorf January 2013

Contents 1. Introduction 2. Japan’s SMEs and overseas business 2.1 SMEs and their role in the export economy 2.2 Challenges of starting overseas activities 3. Initiatives for the promotion of overseas business 3.1 Public support system for globalizing SMEs 3.2 Export promotion through trade fair participation 3.3 Foreign direct investment and financial support 3.4 Human resources development for global activities 4. Conclusion References Figures 2 4 4 6 8 8 10 11 12 13 15 17

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1.

Introduction

Japan and Germany share many similar economic characteristics. As the third and fourth largest economies in the world, both boast highly skilled labor forces and are leading manufacturers of industrial goods such as automobiles, machinery, chemicals, electronics and other high-tech products. But while Germany has been on a robust recovery track and relatively unaffected by the financial crisis, Japan’s economy has been suffering from deflation and sluggish domestic demand. Its growth prospects are further subdued because of its shrinking population. Exports have been the main driver of economic growth in recent years. In Germany, small and medium-sized enterprises (SMEs) are highly active in international trade and responsible for a large share of exports. Germany‘s midsized companies, known as ‘Mittelstand’, are the backbone of its economy. As the “German economy is doing well in comparison with many other countries, this is causing people all around the world to take a particularly keen look at Germany, and especially at the ‘German Mittelstand’ and its longstanding record of high employment and productivity.”, notes the Federal Ministry of Economic and Technology (BMWI, 2012). Coined “hidden champions” by Hermann Simon, the most successful and innovative of them are world-leaders in their field. Although many of them started from humble beginnings and are still family-owned today, they have globalized early on. According to Simon’s research more than 1,000 hidden champions exist in Germany, many more than in all other countries combined including Japan (Simon, 2012). He sees them as the main contributors to Germany’s international competitiveness. Some economists and policy-makers therefore recommend other countries to emulate them as a role model. The success of Germany’s midsized companies or “hidden champions” has not gone unnoticed. In its latest White Paper on International Economy and Trade, Japan’s Ministry of Economy, Trade and Industry (METI, 2012, p. 503) refers to Germany’s “excellent small and medium-sized companies” which have pursued a two-pillar strategy of high specialization in their fields of expertise combined with global marketing. With sales of up to 4 billion euro, many hidden champions have outgrown the size of a traditional SME. But even among German SMEs with less than 250 employees according to the definition of the European Commission, almost 20% of all companies are engaging in direct exports. In contrast to their German peers, most Japanese SMEs today still remain focused on the domestic market. While their numbers have been growing in recent years, less than 3% of all SMEs with less than 300 employees are export-oriented. The contrast is even more pronounced in the case of 2

foreign direct investment. While in Germany 17% of all SMEs have invested abroad, the percentage among Japanese SMEs is as low as 0.3% (METI, 2012, p. 503). The smaller their size, the lower the proportion of companies engaged in exports and foreign direct investment. Although small and medium-sized companies dominate Japan’s industrial structure, few of them are involved in international trade. Exports have traditionally been carried out by general trading companies or by large multinational manufacturers, for which SMEs...
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