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Mar. 10, 2015 - Updated 04:16 UTC

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SME technology revolution in Japan

Jan. 11, 2018

In the last of her 3-part series on the future of the Japanese economy Yuko Fukushima focuses on small and mid-sized companies in Japan. They're called SME's and account for 99.7 percent of all firms in the country. These smaller firms are important, and were once the backbone of Japan's post-war economy. But now many are in trouble. Labor shortages and the country's aging population are creating big challenges -- even for the profitable companies.

But the SME's are getting support from the government. There's a government-backed organization called SME Support, Japan. These officials hold exhibitions and match SMEs with buyers around the world. This year, the organization has a new agenda--it is urging smaller companies to join what people are calling the 4th Industrial Revolution. To find out more, I talked to one of the executives at SME Support.

Nozomu Takaoka, the Managing Director for International Relations, SME Support, Japan, doesn't mince words. He says the situation facing small firms in Japan is critical.

Takaoka: If you do not use IT and if you are not internationalized, your future is doomed because of this ageing and shrinking population. Within the next ten years, Presidents of Japanese SMEs, half of them, they will reach seventy years old average retirement age. And actually, you know the last year, some thirty thousand Japanese companies, SMEs, their business is closed. Out of that I think forty four percent were actually making profits. The Japanese economy in terms of productivity, it is lagging behind.

Takaoka says there is a solution -- the Fourth Industrial Revolution. He says new tools will allow Japan to raise productivity and keep growing in a sustainable way.

Takaoka: We need to do some leap frog, you know innovative ideas, do new things. Abe cabinet has focused upon this SME vitalization through IT as one of the key target policy.

The new industrial revolution includes IoT, AI and Big Data. It's a diverse field but the common goal is to digitize factory production lines. That allows automation, higher productivity and innovation.

The government is helping firms to install these technologies, offering funds and tax incentives. But Japan is still playing catch up. Less than 10% of SMEs have upgraded their plants.

Fukushima: So government and your organization are trying to support small and midsize companies to utilize these new technologies brought about by the fourth industrial revolution but many of the CEOs have second thoughts about that. Why do you think that is the case?

Takaoka: Maybe we have too much memory of success in 20th century. During this 20th century, the Japanese industrial manufacturing productivity was among the highest in the world. But the problem is that IT investment is not good enough after the turn of the century because Japanese economy was doing ok and so why take risks and start new things? But the IT industry has changed so much after the turn of the century and the maybe Japanese mind some of them had failed to catch up with that.

But one small company in Tokyo is already seeing change. Sunyou is a medical equipment manufacturer with 150 employees. The firm is a typical Japanese SME that does everything from designing and development, to machine processing, assembling, tuning and inspections. It churns out a variety of products in small volumes.

Leading the company is Katsuya Katogi, President and CEO, Sunyou Co., Ltd. He says he knew almost nothing about AI or IoT till last year.

"At the annual meeting in 2017, I told my employees that we had to increase the operating rates of our machines," says Katogi. "One of our young staff handed me a proposal for introducing IoT to do just that. I thought it was an interesting idea and that's how we started the project."

That proposal was made by Tatsuki Watanabe. He's been responsible for IT duties since joining the company 10 years ago.

"Before we installed IoT, we had to manually input operation rates on Excel spreadsheets at the end of the day, every day," says Watanabe. "It was very difficult to share information. So I wanted to build an automatic calculation system that everyone could see and share."

Sharing information can be a time-consuming process. The company has 3 factories, each one a 15-minute drive away. Workers used to travel back and forth to check on machines and give instructions.

IoT can overcome this problem by connecting data. The company spent 60,000 dollars hooking up its machines.

The icons you see here represent machines in the 3 different factories. All 17 are connected to the network. Real-time data on the machines are sent to the server for all to see.

Green means the machine is operating. If the icon is orange, parts are being replaced. And if black, it's not operating.

Machine operating data feeds automatically into the monthly calendar. Staff can see the process and production plan on one screen.

That makes it easy to improve efficiency. Managers can eliminate unneeded work and respond quickly to sudden orders. Productivity surged 20% in just one month.

Some of the factory managers who had been skeptical about the new technology doubt it no longer.

"I had seen news about IoT, but thought it was for large companies," says Sunyou's Mitsuru Tadokoro. "But now I'm really glad we've got it in our company. I'm proud we are one of the first to do so among SME's."

"We eventually would like to install IOT technologies in other departments as well," says Katogi. "I'm now thinking that we might be able to get something related to AI sometime in the future too."

Takaoka says other SME's would benefit from new technology. He suggests that they start small.

Takaoka: You do not have to take a big risk but if you take small risk and the government is helping and if you find some improvement then you can expand. To allow especially young people working in the factory to freely exchange views, express their opinions.

Fukushima: What if they do not seize this opportunity? What do you think will happen?

Takaoka: You definitely got to introduce IT. I think there's a way. After the second world war this total devastation and the economic recovery business. Our industrial strengths got to be regained which they did. "So the solution is obvious in this kind of situation. I believe that the Japanese people have the best ability to change this difficult situation into a successful future.


NHK World's Yuko Fukushima talked with Newsroom Tokyo anchors Aki Shibuya and Hideki Nakayama about the issues facing SME's and the Japanese economy.

Nakayama: So it seems it's all about raising productivity. But compared to other countries, is Japan that bad in terms of productivity?

Fukushima: I'm afraid so--the data makes it pretty clear. Among 35 OECD countries, Japan ranks 21 in per-capita labor productivity. That's comparing how much one person can produce in each country. Japan's figure is nearly half of that in the US. And that's why Takaoka is saying there's an urgent need for companies here to use any tools they can to raise productivity.

Shibuya: But in many countries, people fear that robots and AI are coming to take their jobs.

Fukushima: Takaoka would tell you that's not a problem for Japan. Remember, this is a country facing a serious shortage of workers and a rapidly aging population.

Quite the opposite, Takaoka says SMEs should be embracing the new industrial revolution, and taking advantage of all the tools it has to offer. He says this could be the last chance for them, and for the Japanese economy.

Shibuya: That seems to be the story in all 3 reports you've done--Japan needs to act fast to protect its economic future, not just at SMEs, but at big companies as well.