The New SME Paradigm: Witnessing Japan's Hope Through Five Award Cycles

Forbes JAPAN and Dentsu Inc. launched a project called the "Small Giants Award" to discover promising small and medium-sized enterprises (SMEs) across Japan. We present a contribution from Masaharu Fujiyoshi, Editor-in-Chief of Forbes JAPAN, following the completion of judging for this fifth milestone year.

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A new breed of companies that defy traditional categorization undoubtedly exists in Japan.
What they share in common is the image of great entrepreneurs like Tadashi Yanai of UNIQLO and Masao Ogura of Yamato Transport.

"New SMEs" creating value beyond the scale of their organizations

 

Should we propose a new category called "New SMEs"? Because there are companies that transcend the scale and size of organizations, whether large corporations or traditional SMEs. Companies that create a distinct impact, setting themselves apart from competitors—creating new markets and spawning subsequent entrants—are precisely the new SMEs we call Small Giants.

Japan has a history of producing such companies. In the 1963 bestseller "Dangerous Companies" by Professor Tami Urabe of Kobe University, Yamato Transport—now a household name—was singled out. Already publicly listed, its management was struggling, lagging behind competitors. When Masao Ogura became president in 1971, he focused on the simple desire of parents to send packages to their children. This was an unconventional idea. Home delivery was a government monopoly run by the post office, and private carriers only dealt with large shippers like manufacturers. Delivering to ordinary households simply wasn't profitable. However, finding the post office's detailed parcel regulations inconvenient, Ogura built a collection and delivery system inspired by the aviation industry's hub-and-spoke model. This subsequently created the home delivery market, which many competitors later entered.

It's not just new products or services; sometimes, simply "communicating" creates a market.

Toru Yamai of Snow Peak, a manufacturer of high-end camping gear, saw the peak of auto-camping popularity in 1996 followed by a sharp decline. While engaging customers through events centered around campfires, he realized the "value wasn't being communicated" – the meaning behind the high prices and the intent embedded in the products. To share this value with customers, Yamai overrode wholesalers' resistance and forcibly implemented distribution reform, initiating direct transactions with retailers. In an era before the term "customer engagement" existed, he established an outdoor brand with the mission of "restoring humanity." When he entered the advanced camping markets of Europe and America, Americans even began using the new phrase, "Snow Peak is luxury camping."

Hoshino Kazuo of Hoshino Resorts, who transformed tourism, also embodies this "value-sharing" approach. While "ecotourism" is commonplace now, he pioneered it. His "resort repeat model," initially a niche strategy, has become a market category.

Then there's Tadashi Yanai of Fast Retailing, who transformed a Yamaguchi Prefecture clothing store into the fast fashion business model through vertical integration as an SPA. The global reach of UNIQLO now requires no further explanation.

Each business transformed its original operations into strengths, pursued contiguous expansion, and created markets. Many painful decisions to cut things off were necessary, and companies possessing this execution capability can truly be called the "new SMEs."

Niche markets can transform into massive markets

The opportunity remains. The world surrounding Kawaguchi Steel Industry (Saga Prefecture), winner of the 2020 Small Giants Award Grand Prix, has drastically changed in just two years. This small company, with 12 employees, designs and constructs roofs for industrial facilities like factories. Aiming to break free from subcontracting, it developed ultra-thin solar panel sheets called "film-type solar." While it completed a universally installable power generation system in 2010, it failed to establish a domestic market. Later, shifting focus to Africa's unelectrified regions, it gained attention across African nations for "bringing light to the darkness." Then, global capital began flowing into the sustainability sector.

First, a partnership proposal arrived from the United Nations Development Programme (UNDP) headquarters in New York. By the end of last year, business partnerships were finalized between UNDP offices in Uganda and Burkina Faso and GOOD ON ROOFS, a general incorporated association founded by the company's representative, Nobuhiro Kawaguchi. In Japan, Kawaguchi and his team install panels on corporate rooftops by paying rent. A portion of the solar power generation revenue is then used for electrification projects in Africa. Companies that lend their roofs can promote their "joint social contribution activities with UNDP." UNDP also wants companies to actively communicate this.

In addition, the Japan Bank for International Cooperation (JBIC) has launched a support measure called the "Global Environment Conservation Project" (commonly known as "Green"). In March of last year, it decided to provide a 30 million euro (approximately 3.9 billion yen) loan to the Republic of Benin. The "Green" loan will be used exclusively for school electrification projects. JBIC endorsed Mr. Kawaguchi's steady efforts in Benin to create jobs and provide technical education while continuing his solar power generation activities. Through Green, Mr. Kawaguchi and his team took on the project entirely.

Originally, there was a market for PPA (third-party ownership model), which involves leasing space on roofs and other locations for solar power generation. With the addition of developing country support and the SDGs context, a huge "PPA electrification market" was created in unelectrified areas where 1.3 billion people live on Earth.

Mitsufuji (Kyoto), which won the Grand Prix in 2018, is another case where the market emerged later. Using unique textiles and technologies born from the history of the declining textile industry, the company developed "hamon," an IoT wearable shirt that accurately acquires biometric data. It was used to alert users to bodily changes, for example, to prevent heatstroke at construction sites and in professional sports in the United States.

"We researched whether it could be used more routinely and if there were applications suited to diverse work environments," said President Ayumu Mitera.

In January 2022, the company announced a smartwatch-style wearable equipped with a multi-carrier SIM. Partnering with Kurabo, it links to a system that manages heat stress risks and physical condition for factory workers. This enables not only workers to monitor their own physical state but also allows managers to centrally monitor all workers.

"The pandemic completely changed how people think about health," says Mitera. People who once resisted having their personal health data monitored have done a complete 180, now wanting to be looked after. This technology is becoming essential not only in aging construction and manufacturing sites but also because local governments and hospitals have long sought "monitoring" from a preventive medicine perspective. Furthermore, as the term "well-being" has gained mainstream acceptance, large corporations are now seeking collaboration on "work styles" and "health."

What was once seen as a niche endeavor by small and medium-sized enterprises (SMEs) has sparked an unexpected public response, expanding the market. The actions taken by business leaders are changing people's awareness of issues like dominoes falling. Isn't this how the "new SMEs" create markets?

Those who persist in action become the protagonists who change the world's landscape.

Text by Masaharu Fujiyoshi / Planning by Makoto Sasagawa (Dentsu Inc.)

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Forbes JAPAN February 25 issue features "Small Giants: New SMEs Are the Stars of Japan's Economy"! We gathered "new SMEs" that create new markets—neither large corporations nor traditional SMEs.
https://forbesjapan.com/magazines/detail/133

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