Management Decisions in a Declining Phase

I am Yoshida, president of Yamada Shusei Ltd., a professional apparel garment repair group in Nagaoka City, Niigata Prefecture.


The Cabinet Office announced on April 25 that nominal gross domestic product (GDP) in 2022, including the impact of prices, was $4.2 trillion in US dollar terms, the lowest since 1980 when comparisons were made.


The impact of the yen's depreciation was significant, and the country's nominal GDP per capita was the lowest among the seven major G7 nations, with Luxembourg in first place at $124,592, 3.6 times Japan's level, and the United States in fifth place at $76,291, more than twice Japan's level.


In addition to this, the global situation is becoming increasingly uncertain. So is Russia's invasion of Ukraine, the new corona pandemic, the U.S.-China confrontation, North Korea's moves, etc., and if trade in primary commodities is disrupted, it will affect commodity prices, economic activity, and the transition to a green economy.


What can small business owners do to address this situation? Although we are not yet ready to take action in our own company, we will try to summarize the situation in terms of organizing the issues.


1) It is important to look to overseas markets rather than relying on the domestic market

 Japan's declining population and sluggish consumption have limited growth in the domestic market. On the other hand, there are many overseas markets where there is demand for Japanese technology and services. In particular, emerging Asian countries have growing populations and incomes, and economic ties with Japan are strengthening. By expanding into overseas markets, SMEs can broaden their growth opportunities.


2) Focus on innovation is necessary

 In order to increase Japan's competitiveness, new technologies and business models must be developed to provide high value-added products and services. In particular, the transition to a decarbonized society will provide opportunities for SMEs. In many cases, SMEs have cutting-edge technologies in areas such as renewable energy and electric vehicles. By promoting innovation while leveraging government support and cooperation, SMEs will have a greater chance of making inroads into the world.


3) Prudent judgment is needed regarding wage increases

 However, we believe that companies should not blindly comply with the government's request for wage increases, but rather make careful decisions based on their own profitability and competitiveness. The government's tax incentives to promote wage increases do not apply to loss-making companies and are only temporary preferences. In fact, it may even put pressure on SME and accelerate the decline in employment and working hours.


While it is true that Japan's economic strength is declining, the high level of uncertainty also represents an opportunity for SMEs to once again play a leading role in revitalizing the Japanese economy, depending on their initiatives. Taking a broad perspective, maintaining a challenging spirit, and improving one's own profitability and competitiveness will lead to the sustainable development of SMEs.