In Part 1 of this Vol2 attached, early stage companies such as startups and relevant markets were rather the target viewpoints, but here in Part 2, I would like to start mentioning about related valuable opportunities and possibilities from a different perspective. I think it is more for overseas (outside Japan) investors, business companies, business investment companies, individuals with abundant management practical experiences, etc from the perspective of Japan and Japanese companies, which are entering in era of major “Corporate Closures” and “Business Successions”, It must be immense potential locally, nationally, and globally.
Currently, Japan Corporate is entering an era of major closure, where it is said that about 1 million small and medium-sized enterprises will be closed due to the aging of business owners, and it is one of the major economic and social issues facing Japan. Around this next 10 years are said to be the peak. By the way, out of the total number of 4.1 million Japanese companies, those classified as SMEs (the criteria for classification vary depending on the type of industry. For example, SMEs in businesses classified as "manufacturing and others" have paid capital, the amount of investment as 300 million yen or less, or the number of full time employees as 300 or less, etc.) are about 3.8 million companies, accounting for about 90% or more, and it is certain that the number of employees, economic scale etc accounts for about 60 to 70% of the total number. In addition, the number of companies that become listed companies is less than 0.1% as the whole, and the ratio is less than that if it becomes a Japanese super-major company that the general mass public people are familiar with. Many of the 3.8 million SMEs are now facing business succession issues and successor issues, so I think it will be easy to imagine the potential for those who can imagine the challenges and opportunities and the coming impact size as a whole.
As for the scale of each company, most companies have annual sales of 10 billion yen or less. And the many companies are classified as small and medium-sized in Japan, but in emerging countries and developing countries overseas, they would be categolized as medium-sized or above. There are a lot of companies and organizations with scale and resources that can be classified as large companies in different market worldwide, and it seems that they are in danger of going out of business.
Therefore, the needs for the opportunity to take over the company are the highest right now, but are most of the companies offered for sale as worthless or have lost their value? That is not the case at all. According to an official survey, more than half of the SMEs are in the black and unfortunately becoming out of business. As a matter of the fact, some companies have lost their value and have reached the end of their lives, but nowadays, even if they are in the black and have still value, there are actually quite a lot of companies that are forced to close their businesses due to various reasons such as aging. Whether to erase the technology, know-how cultivated over many years, resources such as people, goods, money, tangible / intangible assets, and capital etc. Or whether to have an appropriate company or individual taking over the companies by M&A etc to sustain the economic and social value and maximize its value by further synergies and complement growth. Now is somehow crossroad time between that.
But we don't want to fuel negative campaigns, saying it's just a challenge. The point is what kind of opportunities are created and will be created based on this situation and environment. If you are an entrepreneur, a businessman, an investor, a business owner etc, it is a thought that you should have on a daily basis. we are looking at opportunities that have been created based on this issue, the era of major closures, and the current situation of Japanese SMEs that have entered the era of large business succession. Actually, it's a big chance depending on how you look at it.
The people and companies that are particularly likely to seize this opportunity are those who have comprehensively, broadly, deeply and firmly experienced corporate management, business/operational management, and who practically know way of winning management at the overall level of practical works in the corporate business and operational fields. By the way, people who are learning only at desk are not good enough at all(like superficial MBA holder, Consultant etc). Obviously, companies cannot win the competition with their business model alone. The business is a full-scale full-range battle like planning and development ability, design ability, production management ability, quality control ability, capital financial ability, fund raising ability, marketing sales ability, human resources recruitment ability, organizational ability, branding ability, purchasing ability, commercial transaction ability, accounting, logistics, law, trading, global business etc etc… You must be able to manage by making full use of all the management elements with great team.
Under such circumstances, such human resources and companies that have surplus ability are currently in Japan, and started such as M&A intermediary companies, business investment management companies, individual M&A, business models such as Search Funds etc that target such small and medium-sized enterprises. It is becoming more and more prominent to do this, and little by little, there is a trend that can turn this crisis into an opportunity, but we are taking this precious opportunity to a company outside Japan (we would like to convey this to professional experienced individuals and companies who have a wealth of experience in management and business investment (investment funds, business investment and management companies etc).
Japanese companies are sometimes known globally as some of the outstanding super-large companies and part of their group, but as mentioned above and on the other hand, a tremendous number of mid-sized companies are existing, no matter whether they support such large companies or not. And, their small and medium-large sized companies are very competitive in local, national, and global, and their each technology, know-how, people, information/data, and capital etc that have the potential to bring out more abilities by leveraging their management well. It is not uncommon for a company to have its roots for more than hundreds of years. However, there are significant proportion of the companies that have not been able to grasp or maximize the true value of their resources well enough. Why? One of the reasons is that the old owner's mind is ingrained too much, so that their management is not productive, efficient and effective. Also, in the whole percentage, most of these companies understand themselves only from a local and national market perspective, but only very little from a global perspective.
Regarding the maximum utilization of in-house technology and know-how, the technology cultivated over past many years in-house can be sometimes a great treasure that is still comparable to advanced technology. In addition, even if old technologies and know-how cannot be expected to grow in the Japanese local and national market, they may be the technologies and know-how that will be required more in the emerging countries outside of Japan, which are still in the early stages of economic growth when all basic industries are expected to grow significantly not only short but mid-long term.
It should be possible to develop new business models from in-house technology by digging deeper and wider or way of thinking from a new perspective, but such new businesses can’t be found in their closed spaces or communities within the company or in related close industries where they are daily familiar with. Such cases that have not been transformed well(innovation) are occurring everywhere inside many Japanese companies.
As mentioned above, the increase of M&A by Japanese people and Japanese companies, their mediation, management etc to companies that have taken over such businesses itself is a positive movement for the local economy and society, and we have no objection to that, and we think it will continue to progress in the future, year by year.
But on the other hand, one of the business opportunities we are paying attention to is for the companies outside Japan (foreign investment funds, foreign business investment and management companies, etc.) and professional individuals with abundant management and business investment experiences. It must be a flow in which foreign professional layers work on this challenge and opportunity by activating mutual interactions, synergies, and complementary relationships not only in local/national but global viewpoint and strategies.
For example, for local established business companies in emerging countries such as growing Asia, Africa, and Middle East etc, the technologies, know-how, and resources that such Japanese companies have cultivated over many years can be incorporated into their group, and mutual strategic synergies and complementary relationships can be achieved for both side. There are quite large number of managers who want to deepen the growth of the entire group in their own emeging growth markets and local economies by working so. Moreover, it will become an overwhelming strength and differentiation that other local companies do not have and can’t easily have in short term with less investment cost. In order for them to invest in each business from scratch and start each business and to cultivate each resource and assets like possessed by such Japanese companies, it is difficult to overcome the most difficult initial stage of business start-up in each business. However, it will take decades to reach a stable period, and they will be forced to invest a huge amount of time and capital.
For example, in the manufacturing industries, they usually gave up on starting from scratch and until the business will be reached a stable period, and the structure that heavily relies on imports of finished manufactured products from overseas has increased, and such structures are pretty usual many in emerging and developing countries. In many countries, there are cases where various manufacturing industries with a wide range of vertical and horizontal fields of local supply chain ecosystem do not grow well, which should create employment. Various Japanese manufacturing companies(small, mid-large) should be the treasures on a global level, but they will be closed down without taking advantage of that opportunity, and will be absorbed by companies that are only looking at the Japanese domestic(local,national) market. Looking at the market, it should be a considerable loss to the economy and society locally, nationally, and globally, such as being cut off, shrinking, and disappearing from the perspective of old technology and know-how.
History tells us that manufacturing economy and industries doesn't grow in every country. For countries that do not have the soil, properties, mentality, heart etc to grow in the middle, it will be necessary to learn from and work together with countries and people who are good at manufacturing and doing so. Implementing sound economic liquidity, replacement and renewal at the crossborder global level can lead to win-win economical and social mechanism for both developed and emerging companies and economies.