Japan’s Business Sector Facing a Crisis: 1.2 Million Companies without Heirs

With the Aging Population Who is Going to Drive the Economy?

How to save smaller SME's in Japan

Businesses fading away?

The idea may seem a bit incredulous to some Westerners, but approximately 1.2 million Japanese owned businesses could face closure, not due to a failure in leadership, debt, or any of the usual cast of characters that tends to drive people out of business, but because they don’t have heirs to step in and take over.

The Japanese government recognizes the problem and is working on finding a reasonable solution that will keep these companies open, even after the founders/CEOs retire or pass away.

The Numbers of SMEs Operated by Aging Leaders

It’s expected that by the year 2025, 60 percent of small to medium enterprises (SMEs) will be run by executives 70 or older. That means the current crisis will only become exacerbated as a result.

One key factor that may have led to this problem is in the tax codes the government has enacted. For example, for a family successor to take over, they can defer payment of inheritance taxes and gift taxes, but they are only eligible to do that if they retain at least 80 percent of employees on staff at the time of the transfer. Some have said that number is too restrictive.

..by the year 2025, 60 percent of Japan’s SME’s will be run by executives who are 70 years or older..

There are also significant challenges for small to midsize business mergers and acquisitions, making the process too costly and more of a deterrent for aging managers who don’t see the fiscal benefit (to themselves or their company).

Sometimes the Family Heir Is Not Ready

It’s not always about there being no relative who can take over, but rather age gaps that cause problems. For example, Miyakehonten, a brewer in Hiroshima that is known for Sempuku brand sake, has turned to outside sources for help because the President’s son is only in his 20s and hasn’t yet developed the skillset and experience needed to effectively lead the company into the future.

Some Solutions May Involve Making It Easier for Investors to Find Businesses Looking to Sell

France has a nationwide database listing businesses looking to sell to outside investors, or even mergers and acquisitions by other companies. In Japan, no such database exists and there is a growing chorus of people saying this should certainly be something the government needs to consider.

Today’s “otsumami” – a bite size snack:

The Japanese government or private sector needs to do more to deal with the closure rate of small businesses across Japan.

What do you think?

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