Japan's Small Firms: Reinvention Amid Economic Shifts

Hitoshi Fujita's company, originally a small metal parts producer, expanded by acquiring two neighboring firms. As Japan faces faltering growth and a population decline, the government is shifting its traditional approach to business, encouraging mergers and acquisitions over bankruptcies. This aims to channel workers and investment to the most productive sectors and boost wages while navigating cultural and economic hurdles.

Hitoshi Fujita's company, long a modest metal parts maker, recently expanded by acquiring two neighboring firms, a rare move for small Japanese manufacturers. Despite years of sluggish growth and population decline, Japan's small and medium-sized enterprises face a major shake-up as pandemic support wanes and interest rates rise for the first time in 17 years.

Senior government officials told Reuters the country is willing to let more underperforming firms fail, marking a significant policy shift. This strategy aims to redirect resources to more productive companies, potentially lifting wages. However, officials emphasize that mergers and acquisitions are preferred over large-scale bankruptcies.

While bankruptcies are on the rise, the focus is on ensuring they do not escalate to levels that spike unemployment. Government centers offer M&A advice to small businesses, but challenges persist due to cultural and economic roadblocks. Some businesses are successfully navigating the changes, increasing wages and productivity by investing and innovating.

(With inputs from agencies.)