(1) What are SMEs ?

KUROSE Naohiro, January 2021

Thinking about what is SME

The Suga Administration is focusing on "SME Reorganization" in their SME Policy. The productivity of SMEs is lower than that of large companies in every country, but especially in Japan, and the percentage of people working in SMEs is higher than others. This is the reason why Japan's GDP per capita is lower than that of other developed countries. Therefore, the Administration's Policy is based on the idea that small and medium-sized enterprises must be enlarged through mergers to increase productivity. This is the theory of Mr. David Atkinson, Prime Minister Suga's brain and a member of the "Growth Strategy Council", but it is an outrage to categorize SMEs as low-productivity companies and argue that they are the root of all evil. .. Then, what kind of company should be considered as a small and medium-sized enterprise? The traditional view of SMEs can be broadly divided into the following two.

Problem-type SME Theory

One is an idea since before the war to regard SMEs are low in productivity, with low-wage, and low-development enterprises, and are viewed as the central point of problems in the Japanese economy (let me call this as the Problem-type SME Theory). It used to be the idea of ​​most, including the government. Mr. Atkinson's theory of SMEs can be categorized here, but the Problem-type SME Theory at that time was the result of the backwardness of Japanese capitalism and the concentration of economic power on large companies as the root of the existence of SMEs with low development potential. It is different from Mr. Atkinson's idea that SME protection measures by the government are creating SMEs.

The word "double structure" was once popular. On the one hand, Japan is as modern as large enterprises, and on the other hand, pre-modern SMEs are at odds with each other. So to speak, it is equivalent to the existence of a dual structure of developed and underdeveloped countries in one country ("Economic White Paper (1957)"), and they sought the root of the problematic nature of SMEs in the backwardness of Japanese capitalism.

Promising-type SME Theory

Against the background of innovation and development of SMEs during the period of high economic growth, the theory of Aggressive SMEs was raised as an objection to the theory of Problem-type SME. SMEs are vibrant and vibrant enterprises that play an active role in the national economy. Appearing in the mid-1960s, it also influenced the government's view of SMEs. In the "White Paper on Small and Medium Enterprises 1970", small and medium enterprises are made to survive by the advantage of small and medium enterprises without the foundation of low wages. The positive view of SMEs has further advanced, and SMEs have been described as "a vibrant majority", "a driving force for economic and social progress and development" and "a body of creation" (SME Policy Council "1980s SMEs". "Vision", "90s SME Vision"). The Basic Law for Small and Medium Enterprises (New Basic Law), which was drastically revised in 1999, also stands on the same view of small and medium enterprises.

Necessity of Synthetic Theory of SMEs

I think that the Problem-type and Promising-type SME Theory both has some correct aspects, but it is a partial theory that captures only one aspect of SMEs. For example, the Problem-type SME Theory cannot explain the fact that SMEs after the high-growth period became the driving force of international competitiveness due to innovation. Promising-type SME Theory emphasizes the development potential of SMEs and neglects the problems that SMEs have, and cannot explain the difficulty of SME management since the 1990s. I said, "SMEs have inherent development potential that large enterprises do not have, but they also have inherent problems that hinder their manifestation. Therefore, SMEs become a unified product of development potential and problems. Both development and problems should be theoretically included as constituting the essence of SMEs together, and "consolidated understanding" should be made. I call it by myself a Synthetic Theory of SMEs because I can see both at the same time. In fact, the source of this theory is the Doyukai (The National Conference of the Association of Small Business Entrepreneurs). Members of the Doyukai are confident in the development and role of SMEs, recognize the problems that SMEs have, and strive to realize a good business environment. The Synthetic Theory of SMEs is an idea learned from this attitude of the Doyukai.

(2) The Basis of Competition is the Competition to discover Information

KUROSE Naohiro, February 2021

In the previous Chapter, I mentioned that "SMEs have inherent development potential that large enterprises do not have, but they also have inherent problems that hinder their manifestation. Therefore, SMEs become a unified product of development potential and problems." Now, I will start the explanation.

What is market competition?

To think about "what is SME", we need to go back to "what is market competition" Companies are competing in many ways, but the basis is the competition to discover information.

The market is where the supply and demand of products produced by the division of labor of society meet, but since the division of labor is spontaneous, the demand up to yesterday may be met by other products today. Even if there is demand, the price that was set until yesterday may not be accepted today due to the advent of new technology. Finding a consumer who offers money at a price that the supplier considers socially reasonable is a sale, but it is not always successful. A product is not a commodity if it cannot be sold, and it is not always sold, as sales are a "salto mortale" or "fatal leapt" (Marx).

To reduce sales uncertainty, companies go to discover information about demand and technology, and capital is invested accordingly. Information discovery activity is not a one-time process, but information discovery becomes a new product or technology and changes the market, which incompletes the information of other companies and triggers information discovery activity again. In this way, it perpetuates as a process of mutual coercion and continues to be the starting point of corporate management activities. Therefore, information discovery activities are the basis of market competition. Hayek, an economist, defined competition as the process of discovering facts that no one would know without competition, and it does accurately represent the essence of competition.

Spot Information is important

The core of a company's information discovery activities is the acquisition of "information that occurs on the spot" (spot information) based on events during management activities. Not only is this inevitable, but spot information is most helpful in reducing sales uncertainty. An example of spot information is to notice new demand from a customer's words and actions, and to come up with a new processing method from an unexpected production failure. A metal molding company failed to set up a mold, resulting in a strangely shaped defective product. The president saw this and thought that it would take many steps to cut the same thing. But this was done with one stroke of the press. He quickly realized that if he could intentionally press to make parts with complex shapes, it would save a lot of money. He realized the potential for new processing methods behind defective products. He simulated the wrong mold setup, prototyped it many times, and developed a technology to make parts with complicated shapes with one stroke of the press, which led to a deal with a major automobile parts company.

A defective product that happens to appear is one of the fragmentary events and has no meaning in itself. However, because it is information sensed from a mere "fragment", there is creativity due to a leap of recognition, and it creates "new things". This kind of new information that people are unaware of is the most effective way to reduce sales uncertainty. The information from the newspaper is already known to the person who wrote it, and everyone who reads it knows it. So, one business owner said that the newspaper writes something you shouldn't do. However, spot information can produce discoveries at a level worthy of the Nobel Prize, but for management, it doesn't matter if it's new. Sales are uncertain if it is not in line with social trends. The center of the information discovery competition is the discovery of spot information that leads to "new things" around the basic trends of demand and technology formed in society.

Spot information discovery activity is an activity for entrepreneurs

The activity of an entrepreneur is to do "new things". Since "new things" can be obtained from spot information, spot information discovery activities can be rephrased as entrepreneurial activities. Market competition is competition through entrepreneurial activities. When you think of an entrepreneur, Schumpeter's "creative destruction" comes to mind, but entrepreneurial activity is not such a heroic act, but a "new thing" that takes place around the basic trends, and in that sense it is an entrepreneurial activity to do something a little different from others, and it is the reality of market competition. (This will be the topic of next Chapter.)

(3) What brings Development to SMEs

KUROSE Naohiro, March 2021

Need for information sharing

In my previous Chapter (2) , I mentioned that the basis of market competition is an information discovery activity (an activity for entrepreneurs) related to spot information. SMEs do not have the capital, economies of scale, or market power, but entrepreneurial activity has advantages that large companies do not have, which gives SMEs its own potential for development. The advantage is that SMEs can easily share information, so they can sensitively detect spot information from events on the spot. The reason why information sharing is important is that information recognition is not limited to the individual's mind. People utilize the information in the minds of others to recognize things that cannot be done by themselves. The subject of information discovery activities is the individual, but it is carried out as a system connected by an information sharing loop that includes the individual as a part.

Information sharing loop within a company

When modeling an information sharing loop within a company, there are a macro-micro loop for employees to share the Top information (management philosophy / strategy, management performance, etc.) held by business owners, a micro-macro loop for business owners to share
the Bottom information (events at production and sales sites and spot information that occur after that) held by employees, and a micro-micro loop for employees to share the Bottom information among themselves. I do not go into the effect of information sharing by every three loops, but I think business owners feel the importance every day.

Since SMEs are small and their members are physically close to each other, face-to-face can be the core of information media as the most effective for information sharing.

In addition, because the organization is simple, there are no invisible walls between departments, and a common interpretation base for the entire company is formed, and they are mentally close to each other. This allows SMEs to form a thick information sharing loop within the company.

Information sharing loop with outside the company

Company also needs an information sharing loop with outside the company.

The main ones are the loop with customers to obtain demand information, and the loops with other companies to obtain different kinds of information that cannot be obtained by members within the company. Since SMEs mainly have their customers in the area, they are physically close to each other (face-to-face can be used), the production and sales system is not huge or objectified, and it is a human-dominated system, they also have the mental proximity to flexibly accept customer needs.
In addition, SMEs form a regional industrial group to gain an external economy and are physically and mentally close to other companies. In this way, SMEs can build a thick information sharing loop both outside the company.

"Small and medium-sized economics" related to entrepreneurial activities

Small SMEs are characterized by physical and mental "accessibility" with people, which is advantageous for information sharing. This activates Spot information discovery activities (entrepreneurial activities). In other words, entrepreneurial activity has "small and medium-sized economics", which brings about the unique development potential of SMEs. And SMEs accumulate Spot information based on this economic efficiency. Since the Spot information generated "on the spot" is more exclusive than the information written in books, it will build a "unique market" surrounded by information entry barriers by accumulating it, and will develop while gaining price formation power. Of the various fields in the market, entrepreneurial activities are particularly important in the fields of diverse demand, and the "economy of scale" in production cannot be demonstrated, so this is the stage for the development of SMEs.

Some people think of "economy" only as "economy of scale" (like Mr. D. Atkinson mentioned in Chapter (1) of this series), but it is only a kind of "economy". There is "small and medium-sized economy" when it comes to entrepreneurial activities, which brings development potential to SMEs.

(4) Importance of Management Ability

KUROSE Naohiro, March 2021

In the previous Chapter (3), I pointed out that small SMEs have an advantage in sharing information, which activates entrepreneurial activities (Spot information discovery activities), and I called it as "small and medium-sized economics" in entrepreneurial activities. However, this economic efficiency is not automatically demonstrated, and the following management abilities are required.

Entrepreneurial ability

In SMEs, it is unlikely that the business owners are not engaged in entrepreneurial activities, but the enterprises are engaged in entrepreneurial activities, and the business owners themselves need to have entrepreneurial ability. The business owners must be willing to go to the production or sales site to discover the Spot information by themselves. In addition, in order to convert the events in the field into meaningful information, it is necessary for them to brush up their sense of awareness of the problem. Therefore, they must study hard and try to understand the basic trends of the market. And they shouldn't forget that the ability to build information sharing loops is also included in the entrepreneurial ability. Entrepreneurial activities are centered on "Spot information" discovery activities, but information discovery activities are not effective unless they are carried out as community activities linked by an information sharing loop, because, building an information sharing loop is also part of the information discovery activity.

Democratic view of human relationships

Building an information sharing loop is more than just a technique. To share information, we need a democratic view of human relationships. Information monopoly is a source of control along with ownership, so information sharing by ordinary employees raises its position. It cannot be done by a company consisting of a business owner who considers the company as his/her family business and employees as servants or employees who don't question it. Employees are personally equal to the business owner and partners to achieve common goals. Let's call this idea "management partnership". Information sharing is based on the "management partnership principle". This should be a familiar idea to Doyukai members. This is because it is stated in the "Opinions on Labor-Management Relations in SMEs" (January 1975).

Strategy building ability

In order to carry out integrated entrepreneurial activities, it is necessary to have business management ability, especially the ability to build a business philosophy and business strategy.

An integrated entrepreneurial activity cannot be achieved without a rational and persuasive management strategy that takes into consideration the management philosophy, environmental changes and the company's management resources that motivate people to sympathize and work.

Prof. Robert L. Katz, a business scholar, divided the abilities of business managers into the following three.

The first is technical skills, which mean understanding and proficiency in how to work in a particular field, how to proceed, techniques, and so on.

The second is human skills, which mean the ability to work effectively as a member of a group and to create collaborative behavior in the team as a leader. At its core is the sensitivity to sniff out the needs and motivations of the other person and determine how their actions will react.

The third is conceptual skills, which mean the ability to take the enterprise as a whole and coordinate and integrate the various activities and interests of the organization towards a common purpose. They must understand the interrelationships of various functions of an organization and the relationship between the company and society.

Of the above, what is needed to build a strategy is conceptual skills. In my opinion, technical skills can be reached to a certain level through repetition, and human skills, although have innate differences, can be acquired in the midst of human relations. However, conceptual skills require a broader perspective of study that is one step away from day-to-day work and the intellect to continue it, which makes differences between managers to clearly show the superiority or inferiority of strategy building ability. This is because the Doyukai in each region are focusing on study sessions for creating management guidelines. Small and medium-sized economies of scale related to entrepreneurial activities do not occur naturally, but require the above management abilities and qualities.

(5) Demonstration of the Effect of Information Sharing

KUROSE Naohiro, April 2021

By the last Chapters, I mentioned that entrepreneurial activities (spot information discovery activities) have "small and medium-sized economics" based on the advantage of information sharing, but in order to demonstrate them, managers ability is important.

This time, I will show evidence that information sharing has a positive effect on management.

Management plan creation method and Density of information sharing

In a questionnaire survey of SMEs, I once asked which of the following three applies when creating an annual business plan.

a. "General employees participate in the creation of the annual management plan", b. "The annual management plan is decided only by the executives", c. "We do not specifically decide the annual management plan"

As an example of "a", I remember a company where all employees participate to decide the plan at a stay-in meeting, starting from the summary of management for this term and the plan for the next term, formulate policies related to the foundation of management, such as conversion from a trading company to a manufacturer and creation of work rules, etc.　In this case, general employees also participate in the creation of the business plan, so they are familiar with the business plan as their own. In addition, executives will share the information held by regular employees through their participation in planning. Since communication between employees is also active, the density of information sharing among employees will increase.

In this way, the participation of general employees in the creation of business plans greatly enhances communication among corporate members. On the other hand, the density of information sharing in "b", where the management plan is decided only by the executives, will be lower than in "a". "c" has no management plan and cannot be shared, and it seems that the sending and receiving of other information is sluggish, and the degree of information sharing can be considered to be the lowest. The density of information sharing is a> b> c.

The table combines "a", "b"," c" and some items.

First, if you look at the "Information sharing with employees" column, companies that are making efforts to spread the management philosophy to general employees and companies that disclose management information such as sales, in other words, the percentage of companies that promote information sharing other than the participation of general employees in creating management plans is also a> b> c. There is no doubt that the density of information sharing is a> b> c.

Percentage of high-profit, high-wage companies

And what you should pay attention to is the "Management Performance" column. The ratio of companies with "sales growth rate of 20% or more in 1998-2003" and "average annual salary per person of 4 million yen or more" is also a> b> c, and the higher the information sharing density, the more companies with excellent management performance = high profit and high wage.

The same can be said for the percentage of companies that cite factors such as processing technology, product development capabilities, and sales capabilities that other companies do not have as their "company strengths." These suggest that information discovery activities related to technology and demand are active, and are the driving force for high profits and high wages. The percentage of companies that take pride in SMEs, where SMEs play a leading role in industrial development, is also a> b> c.

In this way, the management performance is good in the order of "a", "b", "c". Looking at the size of the company, there are many companies with 1 to 19 people in "c".　The poor performance of "c" may also be due to its small size. Even in that case, there is no manpower and there is no room to make a management plan. Therefore, I think the factors related to information sharing are important.　It has been confirmed that the scale composition is the same for "a" and "b".　Therefore, it can be said that the higher the information sharing density, the better the management performance.　All the above shows the effect of community entrepreneurial activities based on information sharing.

(6) Formation of the Large Enterprise System

KUROSE Naohiro, May 2021

To the Aspects of SME Problems

Until the last Chapters, we considered "small and medium-size economy of scale characteristics" related to entrepreneurial activities as the basis for the development of SMEs.

In the first Chapter of this series, I said, "a. SMEs have inherent development potential that large enterprises do not have, but b. There are also inherent problems that prevent their manifestation, therefore, c. SMEs are a unified product of development potential and problems", and up to the last Chapters, I have explained the grounds for the “a” above. From now, I will start the explanation of “b”.

SMEs have their own potential for development. However, in reality, SMEs are located under an industrial system (hereinafter referred to as "large enterprise system") in which economic power is concentrated in a small number of large enterprises in the central industrial sector, and many SMEs are restrained from demonstrating development potential.

Formation of the Large Enterprise System

There was a time in the market economy where companies of similar size competed with each other.

For example, in the American automobile industry at the beginning of the 20th century, there were 69 automobile companies, making a variety of cars for the wealthy.

Ford also initially made luxury cars, but in 1908, it introduced the Model T, a popular car for farmers.

Farmers' needs for automobiles were "robust", "easy to operate", and "marginal horsepower", and the T type perfectly met this latent homogeneous and large amount of needs. Once the "homogeneous demand field" is cultivated, the focus of competition was not on adapting to diverse demands, but on the pursuit of economies of scale, that is, the increase in productivity due to indivisible large-scale equipment. It lowered prices and reduced "sales uncertainty."

Ford succeeded in reducing prices by introducing a continuous assembly method, and excluded other companies from the market.

As a result, the share of SMEs in 1929 was 15.9%, and in 1935 it was 2.6%, and SMEs were expelled from the automobile industry.

In this way, the automobile industry was dominated by a small number of large companies that built high market concentration and barriers to entry, and became a central industrial sector with large demand at the nodes of many industries. In the United States, such central industrial sectors were formed one after another from the time of entering 20C, and the large enterprise system was born (in Japan, after World War I).

Impact on SMEs

So, what about SMEs that have been excluded from the central industry sector? As mentioned in Chapter (2) of this series, SMEs found place in the field of diverse demand, where economies of scale were difficult to achieve but entrepreneurial activities were important. However, that field was also under the strong influence of large enterprises. For example:

Through input-output relationships, the central industrial sector became a starting point for demand for many industries such as automobiles, to serve as starting point for supplying raw materials and parts to many industries such as steel and semiconductors. The "White Paper on Small and Medium Enterprises 2007" , based on the perspective that large enterprises are the starting point for demand, analyzed the data from 140,000 manufacturing companies (covering about 30% of manufacturing companies) owned by Tokyo Shoko Research, and found that about 60% (80,000 companies) of the 140,000 companies directly or indirectly depend on the demand from listed companies, which is only 0.54% (773 companies). According to this data, most of the companies other than listed companies are SMEs. Due to this relationship, SMEs are strongly influenced by the production plans / capital investment plans and purchasing policies (domestic and external manufacturing policies, purchasing volume / purchasing price policies, etc.) of a small number of large enterprises. This is just an example. Let's summarize the impact of large companies on SMEs.

First, the expansion of the economy and its direction are greatly influenced by capital investment and technological innovation in the central industrial sector, and the business environment of the entire SME, including 40% of companies that do not depend on demand, is formed by large companies. It is the large companies in the central industry that brought about the high growth in the past, the current economic stagnation, the heavy chemical industrialization in the past industry, and the digitization of the current industry.

Next, the management behavior of large companies affects SMEs through business and competitive relationships. The impact of large companies, which are the starting points of demand as described above, is a part of this. Next time, I will write on the problem that the management behavior of large companies puts pressure on SMEs through transactions and competitive relationships (hereinafter referred to as the SME problem).

(7) The Problem of Deprivation

KUROSE Naohiro, May 2021

SME Problems brought about by Market Management of Large Enterprises

Last time, I mentioned that the large enterprise system causes problems for SMEs. The SME problem is a problem in which the management behavior of a large enterprises puts pressure on the SME through business and competitive relationships. When economic expansion is stagnant as it is now, individual large enterprises are also affected, but SMEs are often more damaged. This is because, at the same time as the economic stagnation, SMEs have their own SME problems. The first problem for SMEs is the problem of deprivation.

As mentioned in Chapter (2) of this series, product producers have the destiny of "sales uncertainty." This causes information discovery competition, but large enterprises, especially those with high market concentration and high barriers to entry, have other ways to reduce "sales uncertainty" besides information discovery. It is to try managing the changes in the market that lead to "sales uncertainty".

Price management

First, large enterprises seek to control price and demand movements that underlie sales uncertainty. When the industry is dominated by a small number of large enterprises, it becomes easier to collaborate, other enterprises will follow the pricing of the leading enterprises, and the market price can be maintained at a higher level than when the large number of enterprises are competing. Some enterprises may try to enter the industry because the profit rate will increase, Expected profit rate will be low because it will require huge capital investment comparable to that of existing large enterprises and will increase supply at once. This acts as a barrier to prevent entry, increase supply and maintain high market prices.

Individual enterprises could not be involved in market prices when there were a large number of enterprises, but market prices are now set under the strong influence of the pricing policies of large enterprises, and even if productivity increases, prices do not decrease that much. In addition, large enterprises can reduce the purchase price of parts and materials by the power of oligopoly (the number of purchasing companies is limited). A typical example is a reduction in the unit price of subcontracting by a large enterprise This allows large enterprises to maintain a high rate of profit even if market prices fall.

Demand management

Large enterprises also try to control demand movements. Large enterprises collaborate on price, so the means of sales promotion is differentiation. SMEs also differentiate based on spot information, but large enterprises exaggerate the difference with other enterprises' products by mass advertising with huge capital power and attract customers with fantastic differentiation. Differentiation extends to the enterprise itself, and customers become loyal to the enterprise and lose the independence of product selection. Economist Galbraith said big enterprise "keep consumer discretion within the limits that enterprise can tolerate." Demand management can be said to be part of price management, as sales promotion is to "persuade" consumers to accept prices set by large enterprises. The above demand management has individual consumers in mind, but since all production is ultimately to meet individual demand, this also leads to price maintenance of intermediate products (parts, etc.).

The problem of deprivation

Raising the market (sales) price and lowering the purchase price by large enterprises is a coercion to SMEs that do business with large enterprises to "high raw materials and low products". This creates a "deprivation problem" that deprives SMEs of the value they should have stayed with. In addition, since deprivation occurs when the selling price drops further even if the purchase price drops, it can be said that the "deprivation problem" is caused by a larger decline of relative price (selling price / purchase price) of SMEs.

The "deprivation problem" also occurs through non-price relationships such as postponement of payment to subcontractors, request for "cooperation fee" payment to achieve the profit plan of the parent company, request for frequent and short delivery time free of charge, food and drink cost by the purchasing staff of the parent company, free use of design drawings of the subcontractor, etc.

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There is a word "capuchil" in Korean society. The dominant "cap" makes unreasonable demands on the weak. "It was customary to submit a BOM when delivering manufacturing equipment to Samsung," said a former sales representative of a Korean semiconductor-related equipment manufacturer. BOM is a list of all parts that make up the device. There are many testimonies that a subsidiary of Samsung developed a similar device a few months after handing over the BOM, and was shown the price and was forced to reduce the price (Nikkei, 1 February 2021). "Korea, you too?

(8) The Problem of Management Resources

KUROSE Naohiro, June 2021

This time, as another issue of SMEs, let me take up the issue of management resources, namely the shortage of funds and labor in SMEs.

Financial difficulties

Financial difficulties were once representative of the SME problem.　As I mentioned in the previous Chapter, SMEs are deprived of their value due to "high raw material prices and low product prices".　The value was also absorbed by the delay in payment of the subcontract price by the parent company and the request for "cooperation money" to achieve the sales plan. Due to these deprivation problems, internal funds were insufficient.　

Therefore, SMEs relied on external financing, mainly indirect finance (bank borrowing).　In the past, a loan concentration mechanism was formed in which city banks preferentially lend funds to large corporations backed by the credit of the Bank of Japan, and SMEs were considered "marginal lenders" to lend when there was no demand for funds from large companies. Due to the development of credit unions and the shift to direct finance (stocks, corporate bond issuance) of large corporations, the ratio of loans to SMEs of financial institutions increased, however, borrowing became easier only for some of the best SMEs overall.

In addition, even after 1990, there were several borrowing difficulties, including those of excellent SMEs.

In the financial system crisis of 1997, financial institutions were reluctant to provide new loans to SMEs, or they tried to withdraw existing loans, causing SMEs to panic. In 2007 and 2008, SMEs were locked out due to bank borrowing by large corporations that had difficulty issuing corporate bonds caused by the global financial crisis.

The financial difficulties of SMEs have improved compared to the postwar reconstruction period to the high growth period. According to the Bank of Japan's Tankan, the cash flow DI of SMEs had been negative for most of the period since 1991 (to positive after 2014) due to the above shortage of internal funds and difficulty in borrowing, and financial difficulties worsened, especially during periods of difficult borrowing.

Labor shortage

The first cause of labor shortages in SMEs is the problem of deprivation. SMEs are deprived of value due to unfavorable price relationships, so they lack the ability to pay wages and work longer hours to cover the deprivation.

In recent years, the labor shortage of SMEs has worsened as the working-age population has declined, and many SMEs still complain of labor shortages even today.

However, the labor shortage of SMEs is not a natural phenomenon based on vital statistics.

Since the 1990s, wages have not been raised due to the problem of deprivation (the wage gap with large companies has widened), and the labor force has been preferentially absorbed by large companies.

According to the Small and Medium Business Administration "Survey for Improving Transaction Conditions of SMEs such as Subcontractors" (announced in March 2016), companies that answered that they would "raise employee wages" if profits improved due to an increase in transaction unit prices , 71.6%.

It shows that the problem of deprivation is reducing the ability of SMEs to pay wages.

The second factor is the strong information dissemination ability of large companies.

Large companies continue to disseminate corporate information through sales promotion activities and raise their social recognition (status).

For those who have been imprinted with the name of a well-known company since childhood, joining a well-known company seems to be a first-class life.

Even if SMEs are inferior in wages, they can participate in core business such as business planning, have a lot of room for discretion and scope of work, and work styles that give consideration to each individual. There are many companies that outperform large companies.

However, because they do not have the ability to disseminate information, they cannot convey this appeal, and their ability to attract human resources weakens.

The labor shortages of SMEs caused in this way include the quantitative shortage of not being able to secure employees commensurate with the amount of work and the qualitative shortage the shortage of core workers.

Core workers are young workers who have the ability to respond flexibly to change, specialized personnel who have skills and abilities for technological development, and marketing, management personnel who have management ability, and management successors necessary for the survival of the company. ..

Even in SMEs, quantitative shortages are alleviated during economic stagnation, but qualitative shortages are not improved and have become a chronic problem.

Especially in recent years, the number of business closures has increased due to the serious difficulty of successors to management, and the difficulty of human resources of SMEs has developed into the problem of business closure of SMEs.

The problem of management resources is that large companies preferentially absorb management resources and SMEs run out of management resources.

It can be said that the problem of deprivation deprives SMEs of the value produced by them, while suppressing the capacity of SMEs to produce value.

(9) The Problem of Markets

KUROSE Naohiro, June 2021

In the previous two Chapters, I took up the issues of deprivation and management resources caused by the behavior of large companies putting pressure on SMEs through transactions and competitive relationships (SME Problem). This time, I will talk about the market problem that the management behavior of large companies shrinks the market of SMEs.

Strong motivation for large companies to diversify their markets

Large companies are cautious about capital investment in existing markets.

If the market is occupied by a small number of large companies, the increase in supply due to capital investment by one company will immediately lead to a decrease in the share of other large companies, and there is a risk of fierce price competition.

Therefore, large companies have a strong motivation to expand into other fields where large companies do not yet exist in order to increase profits. At the same time, this is also a means of reducing the “sales uncertainty” that is the fate of product producers.

If a business is limited to one market area, managing prices and demand as described in Chapter (7) of this series will not eliminate the effects of the product life cycle and the business cycle specific to that product.　However, diversifying the markets offsets sales fluctuations in each market and reduces "sales uncertainty."

Diversification of Products

Market diversification includes product diversification and geographical diversification.

As part of product diversification, large companies may enter the SME field where large companies do not exist and steal the market from SMEs at low prices due to mass production. Especially when the economy is stagnant, for example, large companies that were previously only interested in the market of 10 billion yen or more enter the market of SMEs of about 1 billion yen. For this reason, in some cases, policies were taken to prevent unlimited entry of large companies into the SME market by law. In-house production, which reduces the ratio of outsourcing to SMEs when large companies are hit by a decline in demand, can also be seen as a type of entry into the SME market.

Large companies may also enter a completely new industry sector with no competitors and make large investments to monopolize the market. At the same time, it will create a market for SMEs upstream and downstream of the new industry, but the market for SMEs related to the declining old industry will be replaced by the new industry, and the market for SMEs will shrink.

Geographical diversification

Geographical diversification will also serve for large companies to avoid price competition in domestic market, by entering the expanding overseas market to earn profits and reduce "sales uncertainty."

The overseas expansion of large companies begins with the expansion into the export market, and when conflicting with the import restriction measures of the governments of developing countries that adopt import substitution policies and the governments of developed countries that try to protect large corporations in their own countries, they will move on to direct expansion to overseas.

When the exchange rate rises due to the increase in exports of large companies, the international competitiveness of exporting SMEs declines, and products from developing countries that use low wages as weapons deprive overseas markets, furthermore, it will allow them to enter the domestic market. In Japan, this movement has progressed in the textile and general merchandise industries since the 1970s.

When geographical diversification progresses to direct expansion to overseas, initially, the parts market used by large companies overseas will expand to SMEs.

However, if the local procurement of parts progresses due to the local expansion of parts companies and the development of local companies, orders that had been directed to Japan flowed overseas, and parts were also imported from overseas for domestic production and the domestic SME market shrink.

This has happened on a large scale since the 1990s due to the "Production in East Asia" of large companies.

Of course, SMEs are not just looking at the shrinking market.

They are making efforts to develop new markets and transform their business to counter the situation, however, the management resource problem (lack of funds and human resources) mentioned in the last Chapter is dragging the efforts.

As mentioned above, the market problem means the shrinking market of SMEs due to the actions of large enterprises.

It can be said that the problem of deprivation deprives SMEs of the value they produce, and the problem of management resources deprives them of the ability to produce value, while market problems deprive them of the opportunity to realize the value of the products they produce.

(10) SMEs are a unified product of development potential and problems

KUROSE Naohiro, July 2021

Development potential of SME

Here, let me look back on the series so far. In the Chapter (2) of this series,

Producers of goods have a destiny of "sales uncertainty," and I explained that the key to reducing this is the acquisition of highly proprietary "spot information" that occurs "on the spot." I also said that entrepreneurial activities can be paraphrased as entrepreneurial activities because "new things" can be obtained from spot information by doing "new things".

In the Chapter (3), I said that entrepreneurial activities have "small and medium-sized economics" based on the advantage of information sharing, which allows small and medium-sized enterprises to discover and accumulate spot information that large enterprises cannot find, and would build an "unique market" surrounded by information entry barriers. The barrier to entry of information means the lack of specialized technical information required in the market serves as a barrier to enter the market.

In the "unique market", they can avoid excessive competition, which gives them the ability to decide prices. SMEs thus develop in a variety of demand areas where economies of scale are ineffective but entrepreneurial activity is important.

Problems of SMEs

On the other hand, I pointed out that SMEs under the large enterprise system are subject to SME problems such as deprivation problems, management resource problems, and market problems (Chapters 7, 8 and 9). Large enterprises in the core industry sector try to control the market to reduce "sales uncertainty". The first is the management of prices and demand, which causes problems such as imposing "high raw materials and low prices" on SMEs. The abundant funds of large enterprises and their close relationship with large banks due to this deprivation problem concentrate the funds on large enterprises, and the abundant wage resources and name recognition attract the labor force to large enterprises. This causes SMEs to have a management resource problem of lack of funds and labor. Product and geographical market diversification of large enterprises (which also has the effect of reducing "sales uncertainty") will shrink the SME market by entering the SME market and raising orders to domestic SMEs. It can cause market problems. The three problems on SMEs caused by the behavior of these large enterprises bundled together curb the development of SMEs.

SMEs are a unified product of development potential and problems

In the Chapter (1) of this series, I showed my view that

"a. SMEs have inherent development potential that large enterprises do not have, but b. There are also inherent problems that hinder their manifestation. Therefore, c. SMEs will be a unified product of development potential and problems." The above is the explanation of a and b. From now on, I will explain c.

It is important to note that, the market management behavior of large enterprises restrains the development of SMEs, but does not abolish entrepreneurial activity itself. Even if large enterprises develop, the “diversified demand field” that is the stage of entrepreneurial activities will not disappear. There were some "diversified demand fields" that disappeared due to the development of mass production technology, but they are constantly renewing as income rises. Rather, in modern times, the “diversified demand fields” are expanding more than before.

The existence of "diversified demand fields" can be said to be an objective condition for entrepreneurial activities, but the subjective condition is not abolished either. Even if a large enterprise system is formed, the advantages particular to SMEs regarding entrepreneurial activities, that is, the "economy of small and medium-size" in "spot information" discovery activities, will not change at all.

It will also create small business owners with the abilities needed to take this advantage. For this reason, market management behavior of large enterprises causes problems for SMEs, but entrepreneurial activities themselves cannot be abolished. As a result, SMEs are simultaneously affected by the developmental effect of endogenous factors such as the advantage of entrepreneurial activities and the suppression effect of exogenous factors such as the SME problem.

SMEs are doubly controlled by their opposing actions and become a "unified product of development potential and problems".

You can now understand that the problem-type and aggressive-type SME theory introduced in Chapter (1) of this series is a partial theory that looks at only one side of SMEs. The Synthetic Theory of SMEs, which "unifies and understands" both development potential and problems as the essence of SMEs, is the correct view for SMEs.

(11) "Entrepreneurial SMEs" (1)

KUROSE Naohiro, August 2021

Differentiation into 3 types

In the Chapter 10 of this series, I explained that SMEs will be a "unified product of development potential and problems" by simultaneously receiving the development effect of the advantage of entrepreneurial activities and the suppression effect of the SME problems. The essence of this SME appears as three types of SMEs. Through competition, SMEs are crushed by problems, such as "Entrepreneurial SMEs" that overcome problems and succeed in demonstrating full potential, "Semi-entrepreneurial SMEs" that have both development potential and problems. Then, it differentiates into a "Stagnant SMEs" that has lost its development potential.

"Entrepreneurial SMEs"

This type actively develops "spot information" discovery activities (entrepreneurial activities), which are the source of new things, both in terms of demand and technology, and succeeded in breaking through the wall of SME problems. By building a "unique market" surrounded by information entry barriers, they have gained the ability to form prices.

How do such SMEs appear in spite of SME problems, it is necessary to break through the following three walls.

The 1st wall: Difficulty in demand information discovery activities

SMEs need to discover "spot information" about demand and technology to ensure sales, of these, there are inherent difficulties to obtain demand information compared to technical information.

They can choose the technical information they need according to the production purpose, however, as demand information is about the needs of others, the search range cannot be limited like technical information.

Also, as it will be detected from the remarks and actions of others, it is not such easy to capture the thoughts of others accurately. Because of these, it is always difficult to find highly accurate demand information.

Management based on misguided demand leads to bankruptcy. Some companies avoid this risk and rely on the outsourcing of large companies for sales.

However, the ability to discover "spot information" from a casual customer's word like that to sense the demand hidden behind it would not be lost from anybody, small and medium scale of economies would never disappear, and there will always be SMEs that develop entrepreneurial activities in terms of demand as well as technology.

However, even if you discover demand information and offer products that correspond to it, it does not always sell.

Large companies are increasing people's credibility through strong sales promotion activities, which reflexively reduces the credibility of unknown SMEs, and even if you make good ones, it won't sell.

However, this can also be broken through. If you sincerely respond to customer requests, you can have one or two customers on your side, and the customers will tell the potential customer the reputation by word of mouth. Technology is especially influential in reputation. If you respond to various technical demands of customers without dislike, it will become popular, and jobs with high technical difficulty that were refused by others would be brought in.――In such a way, the expansion of customers and the improvement of technology form a virtuous cycle, and the market will expand.

THE 2nd wall: Entry of Large Companies

When the market expands, a second wall would appear.

The entry of large companies stimulated by market expansion.

Even if SMEs have patents, large companies will develop similar products well so as not to touch the patents and sell ​​it at a low price with mass production technology. The strategy of large companies coupled with the name recognition is a big threat to SMEs.

However, although large companies have abundant management resources as a whole, the field is just one business unit of a large company, and SMEs are more specialized regarding the management resources required for the particular business.

For example, there are some parts of technology gained by accumulating experience and are in a black box for other companies, it is not easy to obtain the technical information even for a large company. As a result, it is not uncommon for large latecomers to withdraw due to poor quality.

Just as specialty stores do not lose in competition with department stores, specialized SMEs can beat large companies with diversified business.

As above, SMEs will emerge by breaking through the two walls as described above and will succeed in building their own market surrounded by information entry barriers.

At this point, it can be said that an "Entrepreneurial SME" was born.

However, the 3rd wall still remains.

I will explain about it in the next Chapter.

(12) "Entrepreneurial SMEs" (2)

KUROSE Naohiro, September 2021

The 3rd wall to "Entrepreneurial SMEs"

In the last Chapter, I explained why the "Entrepreneurial SMEs" appear despite the wall of SME problems and develop activities to discover "Spot information" (entrepreneurial activities) in terms of both demand and technology to acquiring price formation power.

The point is breaking through two walls of difficulty in demand information discovery activities and the entry of large latecomer companies. If this is successful, we can say that an "Entrepreneurial SME" is born. However, the existence is not yet sustainable. Because, they have not solved the difficulty of acquiring human resources, one of the management resource problems of SMEs.

Entrepreneurial activity must be a community activity connected by an information sharing loop, and it cannot be sustained by relying on the activities of individual SME owners.

For entrepreneurial SMEs, even if they have promising businesses, it is not easy to recruit human resources. Job applicants are interested in large, well-known companies and are cold for SMEs. As one SME owner said, "If any of them come through the gate of our company, we can persuade them, but I can't help it because nobody come through. " This difficulty in human resources is the 3rd barrier to “Entrepreneurial SMEs”. However, some SMEs have succeeded in breaking down this barrier. The following efforts can be pointed out as the main examples.

A Rewarding Workplace

The purpose of workers in a company is to get the wages they need to live. However, one seeks not only economic reward but also non-economic reward from labor. People envision what to make and how to make it before moving the body, and based on the vision, spend the labor force with a certain tension and get the deliverables. At the end of labor, they can see not only the reshaped raw materials but their concept appeared. People see it and confirm their abilities, get the joy of self-actualization.

Also, when they realized that the deliverables have helped others, their joy doubles.

Animals also acquire living materials by labor,　but there should be no such joy in that instinctive labor.

Human labor has non-economic rewards, and if it were compromised, even if they get a high salary, labor may be painful.

Since SMEs are small in scale, ordinary employees can participate in the formulation of the "business plan" of the enterprise, which is the "concept" of labor. Even if they can't participate in the top-level plan, it's easy to share information, so they should be convinced of the plan, flesh it out as their own mission, and formulate their own execution plan. In addition, even if they are not involved in the "business plan" at all, they may be entrusted with the actual work from ordering to delivery, and they may work with a wide discretion like a sole proprietor.

This is common in companies with highly specialized work. In the above cases, the "feeling of being forced" of labor rooted in employment relations diminishes. The outcome of labor is a joyful manifestation of one's own abilities. Taking advantage of these characteristics of SMEs to build a rewarding workplace This is one of the characteristics of SMEs that have succeeded in acquiring human resources.

Working Conditions First

There are also SMEs that have set the goal of shortening working hours and raising wages in their "management plan" and are making efforts to increase value-added productivity jointly by labor and management. Instead of spending that share on raising working conditions when productivity goes up, the idea is to increase productivity in order to improve working conditions. Compared to the former "productivity standard principle", the latter can be called "working condition standard principle" or "working condition first". The working conditions of SMEs are not as good as those of large companies. The ability to create value is weak due to lack of management resources, pressed against unfavorable prices, deprived of the value produced, etc. The SME problem is a major factor, but don't give up. We strive to reach our goals little by little every year. For example, there is a company that has succeeded in shortening the time by 15 minutes every year and shortening the time by 1 hour in 4 years. Some companies are gradually approaching by raising productivity with the aim of achieving salaries comparable to those of civil servants. Not only the results, but also the unified system aiming to improve working conditions attracts workers. In this way, they differentiate themselves in the labor market as well, building thick pipes with universities or vocational schools, and increased name recognition in the area. If they can secure stable human resources, it can be said to be a sustainable “entrepreneurial SME”.

(13) "Semi-Entrepreneurial SMEs"

KUROSE Naohiro, October 2021

Entrepreneurial activity is limited

In the Chapter (11) and (12) of this series, I described the necessary conditions for "Entrepreneurial SMEs". This time, I would like to talk about "Semi-Entrepreneurial SMEs". This type is the most common type among SMEs that have both development and problems because the results of entrepreneurial activities are limited.

The results are limited, firstly, when the results of entrepreneurial activities are biased toward technical information discovery activities, secondly, when both demand information discovery and technical information discovery activities produce only limited results, and thirdly, when the results of entrepreneurial activities are biased towards demand information discovery activities.

"Semi-Entrepreneurial SMEs" as Subcontractor

The first type is the most common in Japan, as subcontracted SMEs. Since there are difficulties in demand information discovery activities, some SMEs appear to give up demand information discovery activity in the general market, and depend on outsourcing of specific large companies.

Because there are many SMEs that receive orders from the ordering party, competition between SMEs is fierce, and an "unequal outsourcing relationship" is formed in which large companies are in a superior position. This is called a subcontracting relationship. Subcontracting SMEs are forced to reduce prices by their parent companies and are also used as a buffer for the economy. Although "sales uncertainty" is high, it is better than closing the sales channel at all, and in exchange for subordination to the parent company, choose a way to secure a certain amount of sales market.

Even such subcontractors actively develop entrepreneurial activities in terms of production technology, and some have accumulated highly specialized technologies. The technology is more advanced than the in-house production department of the parent company as they have the technical ability to solve problems that the parent company cannot solve, thus became an important subcontractor for the parent company, and they lower "sales uncertainty" than other subcontractors.

Since the mid-1970s, the number of such subcontractors has increased. However, even if they have excellent technical capabilities, they rely on a specific company for most of their sales, and are unable to build an equal business relationship in forming the price. These are the "Semi-Entrepreneurial SMEs" as Subcontractor.

Growth into an "Entrepreneurial SME"

In order for this "Semi-entrepreneurial SME" to grow into an "Entrepreneurial SME", the ability of the business owner to build a strategy is important as follows.

The company was a subcontractor with customers from multiple major electronics manufacturers.

Sales increased with precision processing technology as a weapon, but it was a "Semi-entrepreneurial SME" that could not form a "unique market".

In the 1990s, sales plummeted temporarily as the economy fell into a secular stagnation.

Sales were stopped temporarily because the seeds of the company's redevelopment were being sown. Already active development activities such as developing special molds from the latter half of the 1970s, and in the early 1980s, the president set up a strategy of "establishing an independent corporate structure (independent company)" and has materialized a management plan, which was shared by all employees who participated in the planning. They acquired ME technology specialists according to this plan, and based on the customer's request, they have developed a thermocompression bonding device that connects printed circuit boards related to camera electronic shutters with solder.

In the 90's, while searching for product development to break through the recession, from conversations with visitors at an exhibition, they realized that needs were moving toward transmitting more information between devices.

They have developed a new product that connects a liquid crystal display and a printed circuit board with a film material using the principle of thermocompression bonding.

This became a hit product that won the excellence award of the Nikkei Excellent Product and Service Award.

The company has developed into an "Entrepreneurial SME" that is active in the global market.

Until they get the demand information that triggered the development, it took seven years from the development of the thermocompression bonding equipment, so it is clear that accurate demand information cannot be easily obtained.

However, it was not just good luck, but the fact that all employees shared the strategy of "establishing an independent corporate structure (independent company)" that the president advocated led to the discovery of this demand information.

Even if the company is a "Semi-Entrepreneurial SME", the business owner himself must have the same ability as the owner of a higher-level "Entrepreneurial SME" to raise "Semi-Entrepreneurial SMEs" to "Entrepreneurial SMEs".

(14) "Stagnant SMEs"

KUROSE Naohiro, November 2021

In this series, I defined that SMEs are a "unified product of development potential and problems." This essence appears as three types of SMEs, and in the 11th and 12th Chapter, I talked about "entrepreneurial SMEs", and in the 13th Chapter, about "Semi-Entrepreneurial SMEs". And this time, I will talk about the third type, "Stagnant SMEs".

This type represents the companies that cannot develop entrepreneurial activities, oppressed by the SME problems because they have no management strength, and exists mainly depending on negative factors such as low wages. They are a group of companies that show the typical problem of SMEs.

Semi-unemployed type "Stagnant SMEs"

There are two types of "Stagnant SMEs". One is a Semi-unemployed type Stagnant SMEs without a technical foundation, where SME owners started business and workers started to work to avoid unemployment in an era when the high unemployment rate and low wages were common due to the large number of excessive workers. Work is simple and labor-intensive assembly or routine partial processing, for example, processing in a narrow range of work with a single model such as a lathe. Orders are volatile, forced to work with low subcontracting prices, and continue to survive depending on low-wage labor and self-exploiting hard labor.

In Japan shortly after the defeat in World War II, a huge amount of excessive workers accumulated in rural areas and urban areas, caused by the total closure of munitions factories, paralysis of production activities, demobilization and withdrawals from the battlefields and former colonies. From among them, many "“Stagnant SMEs”" that avoid unemployment were created. This type is decreases as the high unemployment rate and low wages that caused it have been dissolved. In Japan, high growth began in the latter half of the 1950s, labor shortages and wage increases rapidly progressed, and at the same time, decrease began. However, since it is produced at low cost without any special technology, sales may increase in heteronomy due to economic expansion, and it has survived even after the period of high economic growth.

Non-adaptive "Stagnant SMEs"

Instead, the number of non-adaptive "Stagnant SMEs" has increased. They are not able to enhance entrepreneurial activities in response to changes in the industrial structure, and the management strengths that it once possessed become obsolete and cannot counter the SME problem. Therefore, they are a group of SMEs that have left the market, or have been prolonging their lives for a while depending on low-wage marginal labor. Let's take a concrete look.

The High growth period

During the high-growth period, the shift of industry to heavy chemical industry and labor shortages progressed, and SMEs were requested to respond to this by entrepreneurial activities to promote specialization of production items, mass production, and labor saving. However, at that time, there were many SME owners and technicians who grew up in a world that relied on craftsmanship, and many SMEs could not promote this technological innovation.

The Slowdown economy period

During the slowdown economy period from the mid-1970s, transition to high-level processing industry (transition to high value-added fields of industry) progressed, and SMEs, in addition to production, were required to have the power to developing products and technologies as well as opening up new markets. It became necessary for SMEs to enhance entrepreneurial activities in terms of both technology and demand development. There was also a change advantageous for SMEs, such as production of various items in small quantity, and entrepreneurial activity has become more active. On the other hand, from this period, the market expansion of SMEs slowed down, and the price relations surrounding SMEs became disadvantageous, the problem of SMEs, which had been alleviated during the high-growth period, began to worsen, and SMEs without enhancing their entrepreneurial activities became stagnant.

The long-term economic stagnation period

During the long stagnation period after the 1990s, production in East Asia progressed, and SMEs needed the ability to create their own markets rather than respond to changes in the market. So, entrepreneurial activities in terms of marketing, which was a weakness of the Japanese small and medium-sized manufacturing industry, have become important. However, the unprecedented seriousness of the SME problems such as significant shrink of SME market and deterioration of price relations, etc., suppressed risky entrepreneurial activity, and the number of stagnant SMEs increased.

In this way, non-adaptive "Stagnant SMEs" appear at each period. These SMEs will either leave the market or rely on low-wage marginal labor to prolong their lives. Since the 1990s, a low-wage base has been formed by foreign workers such as low-wage non-regular workers and technical intern trainees, and the number of stagnant SMEs that rely on this base has increased.

(15) "Diversity of SMEs SMEs"

KUROSE Naohiro, December 2021

Diversity as a phenomenon of the essence of SMEs

In the 11th to 14th Chapters of this series, I classified SMEs into "Entrepreneurial SMEs," "Semi-entrepreneurial SMEs," and "Stagnant SMEs," and clarified their characteristics. As I mentioned in the first Chapter of the series, "SMEs have inherent development potential that large enterprises do not have, but they also have inherent problems that hinder their manifestation. Therefore, SMEs are unified product of development potential and problems. "The unique development potential of SMEs is their advantage in entrepreneurial activity. Unique problems are SMEs problems such as the deprivation problem caused by large enterprises. The essence of SMEs as the "unification of development potential and problem" appears as the differentiation of SMEs into three types through competition, that is, the diversity of SME development, just as sunlight is dispersed through a prism.

SMEs have both higher and lower profit margins

The diversity of SMEs can also be seen in Figure 1. Large companies concentrate on profit margins in the ▲ 10% to 10% range, but SMEs are diversified, and the percentage of companies with low profit margins and the percentage of companies with high profit margins are both higher than those of large companies.

Figure 2 shows data on prewar SMEs in the United States. In the "Overall", the capital profit rate increases as the scale increases, but for "Profitable companies", the smaller the scale, the higher the profit rate, and the smaller the scale, the higher the percentage of companies with a high profit rate. At the same time, it can be considered that the negative profit rate of "Deficit companies" increases as the scale decreases, and the proportion of companies with a low profit rate increases as the scale decreases.

In this way, the diversity of national and timeless development is a characteristic of SMEs.

For this reason, some SMEs are full of development potential and some are full of problems depending on how the SME groups are cut. Just like cutting a cone in a plane perpendicular to the bottom gives a hyperbola, cutting in a plane parallel to the sideline gives a parabola, and cutting in a plane not parallel to the bottom gives an ellipse.

However, although SMEs are diverse, they are not “disjointed”. Just as a cone is a unification of various quadratic curves, even if it is diverse, SMEs are one with the essence of "unification of development potential and problems.

The error in Atkinson's theory

Mr. David Atkinson, whom I mentioned in the first Chapter, said that SMEs are uniformly problematic and are classified as "Stagnant SMEs" in the above classification because "economy of scale" does not work. This is a ridiculous misconception. It is the correct view to understand both "development potential" and "problem" as the essence of SMEs ("Synthetic Theory of SMEs"). It is also a mistake to ask for the problem of SMEs that "economy of scale" does not work. Even if "economy of scale" does not work, if the field is necessary for the national economy, price adjustment will bring labor productivity to the same level as other fields. On average, the labor productivity of SMEs is lower than that of large enterprises because the large enterprises sector is in the position of sales- purchase oligopoly, so it has the power to make the price relationship advantageous to large enterprises and disadvantageous to SMEs. In addition to this "deprivation problem", the "management resource problem" and "market problem", which are the SME problems imposed on SMEs by the large enterprise sector, are bundled together to lower the labor productivity of SMEs. It is not the physical effects such as "economies of scale" that bring problems to SMEs, but the relationships between the enterprises. The physical effects cannot be stopped, but their relationship can be changed. The "Synthetic Theory of SMEs" argues that if the SME problem is solved, the development potential of SMEs will flourish.

This is the end of the theoretical Chapters of "Thinking about SMEs".