Japan’s business dynamism is outpaced by that of global competitors, which also experience higher firm entry and exit rates than in Japan. To grow entrepreneurship out of the gate, we must look at regulation, which is very complex; we also call for reform of SME finance and extension of innovation support.
Although in 2020 we introduced online services via the gBizID platform, the registration procedure is still a burden. Also, adoption is low; only one-third of corporations are on board, which is far below the 2030 government target. We may see a meaningful reduction in admin friction by expanding digital integration and eliminating redundant info requests.
Public credit guarantees and subsidies, which, although at present are below the levels seen at the height of the pandemic, are still supporting low-productivity firms. Almost 15% of SME’s are what we may term “zombie firms,” which are sucking in resources away from more progressive businesses. A gradual phase out of guarantee coverage and in its place an increase in access to venture capital. Also, we need to see a different approach to innovation support.
SMEs put in only 5% of business R&D, which is mostly dominated by large manufacturers. We also see a need to simplify the very broken tax credit system and make credits refundable for early-stage firms, which in turn will get more players in the game and see which innovation that does add to productivity growth happens at a faster rate.
