Break with the uniform policy for SMEs

Author: Naomi Kodama, Research Associate, RIETI

The number of companies in Japan has continued to decline after peaking in the latter half of the 1980s. According to an estimation using census data, the total number of companies in Japan in 2005 was 82 as a percentage index relative to the base of 100 in 1990, and the number in 2015 was 74. I, together with Professor Yoshiaki Murakami of Osaka University of Commerce and Professor Yoshio Higuchi of Keio University, conducted a simulation of how the numbers of companies and employees in Japan will change in the period until 2040. The results show that the number of companies is projected to decline further over the next 10 years, falling to 58 in 2025 relative to the 1990 base of 100 (Note 1). Over the next 10 years, a similar number of companies to the number of companies that disappeared over the 25-year period from 1990 to 2015 will disappear.

The decline in the number of companies can be explained in large part by demographic changes. Figure 1 shows the age distribution of the population and managers based on the 2011 Economic Census and data compiled by Tokyo Shoko Research (TSR). This figure indicates that the peak age in 2011 was 62-64 years old for both the population and managers, meaning that the babyboomer generation accounts for the largest proportion of the population at large and is in the management positions. In 2015, people in this age group were 66-68 years old, and in 2025, they will become 76-78 years old, ages at which most managers retire. While managers of older generations are retiring, very few people of young generations become managers by starting up new businesses or succeeding existing businesses. Figure 2 shows changes in the age distribution of managers. Their peak age rose from 59 years old in 2006 to 66-67 years old in 2015. The peak age rose by eight years over the nine-year period.

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