The Challenges for and in Japan SMEs

Small and medium-sized enterprises (SMEs) play a significant role in Japan’s economy, accounting for over 99% of all businesses in the country. However, these SMEs face a range of challenges that threaten their growth and sustainability. In this article, we will discuss some of the challenges faced by SMEs in Japan and explore possible solutions.

Aging Population

One of the most significant challenges faced by SMEs in Japan is the aging population. Japan has one of the oldest populations in the world, with over 28% of its citizens over the age of 65. This demographic shift has led to a decline in the workforce, making it increasingly difficult for SMEs to find employees. Moreover, many of these SMEs are family-owned businesses, and with an aging population, there are fewer successors to take over the business, leading to concerns about continuity.

High Operating Costs

Another challenge faced by SMEs in Japan is the high operating costs. Rent, labor, and taxes are among the highest in the world, making it difficult for SMEs to compete with larger corporations. Many SMEs operate on tight profit margins, which means that any increase in operating costs can have a significant impact on their bottom line.

Lack of Digitalization

While Japan is known for its technological advancements, many SMEs have been slow to adopt digitalization. According to a survey by the Ministry of Economy, Trade and Industry, only 47% of SMEs have a website, and only 11% have an e-commerce platform. This lack of digitalization has made it difficult for SMEs to expand their customer base and compete with larger corporations, which have already embraced digitalization.

Difficulty in Accessing Financing

Access to financing is crucial for the growth and sustainability of SMEs. However, SMEs in Japan often struggle to secure financing from banks, which tend to favor larger corporations. Moreover, the high collateral requirements and lengthy application processes make it difficult for SMEs to access financing, particularly for those with limited assets.


To address these challenges, there are several solutions that SMEs in Japan can adopt. One solution is to promote entrepreneurship and encourage the formation of new SMEs. This can be achieved through the provision of financial incentives, tax breaks, and support services for new startups.

Another solution is to promote digitalization and the use of e-commerce platforms. The Japanese government has already taken steps in this direction, providing financial support to SMEs to develop their e-commerce capabilities.

To address the difficulty in accessing financing, the government can provide financial support to SMEs through a variety of channels, including loan guarantees and venture capital investments.

Lastly, SMEs can also explore new markets beyond Japan. This can be achieved through the development of strategic partnerships with other businesses and through the use of digital marketing tools to reach a broader audience.


In conclusion, SMEs in Japan face several challenges that threaten their growth and sustainability. These challenges include an aging population, high operating costs, a lack of digitalization, and difficulty in accessing financing. However, by promoting entrepreneurship, embracing digitalization, and exploring new markets, SMEs in Japan can overcome these challenges and continue to contribute to the country’s economy.

The government can also play a crucial role in supporting SMEs through the provision of financial incentives and support services. By working together, SMEs and the government can create an environment that fosters innovation, growth, and sustainability.


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