SMEs without successors, a shock announced in Japan

Activity at this machine tool factory near Tokyo is expected to be in full swing. But instead, the calm that reigns means that you can hear the boss playing the recorder, one of his favorite pastimes.

At 82, Kiyoshi Hashimoto is well past retirement age. But he still hasn’t found a successor or buyer for the business he founded nearly 40 years ago, although it retains loyal customers.

His problem is far from an exception in Japan, whose economy is suffering from a world-record demographic decline: more than 29% of the national population is already aged 65 and over.

The country is on the verge of an “era of mass shutdowns”, predicts Shigenobu Abe of Teikoku Databank, a firm specializing in bankruptcy data.

According to a 2019 government report, 1.27 million Japanese business owners with fewer than 300 employees will be 70 or older by 2025 and will have no successors.

This situation could eliminate 6.5 million jobs and amputate the national economy by 22,000 billion yen (140 billion euros), according to the same study.

– Loss of know-how –

As elsewhere in the world, Japanese SMEs are usually passed on within the owner’s family or to trusted employees.

Kiyoshi Hashimoto, boss of the J&A Sakura machine tool factory, during an interview with AFP at his factory in Yachimata, Chiba prefecture, Japan (AFP – Kazuhiro NOGI)

But the country’s prolonged economic stagnation for three decades has made small businesses unattractive to young people, and those in rural areas even less so.

Another aggravating factor is that some elderly Japanese entrepreneurs consider it shameful to have to sell their company to someone outside their family. Some prefer to liquidate everything when they retire.

The government is trying to respond with various financial incentives to encourage business sales, and private companies are also helping sellers meet potential investors.

One of these specialist companies, BATONZ, mediates more than 1,000 business resales per year. But this only affects a tiny fraction of the people who need it, underlines its president Yuichi Kamise.

Waves of closures of SMEs will lead to the loss of technical know-how, unique services or original cooking recipes in the case of restaurants, warns Mr. Kamise.

“I think it will deal a serious blow to Japanese culture and the attractiveness of Japan as a tourist destination,” he said.

– Hidden nuggets or zombie companies –

Yashio Logistics Group Chairman Hiroshi Miyaji on April 26, 2023 in Kawasaki, Kanagawa Prefecture, Japan (AFP - Yuichi YAMAZAKI)
Yashio Logistics Group Chairman Hiroshi Miyaji on April 26, 2023 in Kawasaki, Kanagawa Prefecture, Japan (AFP – Yuichi YAMAZAKI)

Others, on the contrary, think that it is a unique opportunity to sort out the small companies with value and those kept artificially alive thanks to subsidies.

“There will always be buyers for firms” with “unique skills” and quality staff, says Hiroshi Miyaji, 50, owner of a logistics group founded by his grandfather and who has bought other companies, such as a small family road freight company.

The glut of small businesses to take over can also be a boon for young entrepreneurs, like Rikuo Morimoto, a 28-year-old chef.

“I thought I could only afford a food truck or a small bar,” he told AFP.

The chef and restaurant owner
The chef and owner of the restaurant “Andante”, Rikuo Morimoto (in the center), talks with the former owner of the establishment Shizuko Suzuki, on May 1, 2023 in Tokyo (AFP – Kazuhiro NOGI)

Prevented by the Covid-19 pandemic from going to study in Italy, the young man cheaply bought a 40-year-old Italian restaurant in Tokyo. He kept the decor, the furniture and a lot of the old clientele, while offering his own menu.

But for his part, Kiyoshi Hashimoto is still looking for a solution for the future of his machine tool factory, after trying in vain to prepare three successors.

“It would all go to the scrapyard if I were to close now,” he says amid the workbenches, drill tables and parts storage cabinets in his factory.

“I’m just waiting for someone to come along and make use of it all.”

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