Japanese companies are showing signs of accelerated metabolism. The number of newly opened companies in 2023 exceeded 140,000, an increase of nearly 10% over the previous year. As the scale of public support for the epidemic is reduced, more and more companies are closed. Japan’s prices, wages, and interest rates, which have been stagnant in the past, have begun to rise, and companies must improve production efficiency. The Japanese economy, which once suffered from the failure of market laws and fell into low growth, may usher in a turnaround.
“There are many support policies behind it, and it is easy to go with the flow.” Nakase Masahiro (25 years old), who started a business in October 2023, was once an engineer. Recept (Shibuya, Tokyo), where he serves as CEO, develops an APP for online identity verification. During the COVID-19 pandemic, when online business increased, demand in this field increased significantly.
Analyzing the data from the corporate number website of the National Tax Agency of Japan, it was found that the number of newly registered companies has increased significantly since 2021. The number of newly registered companies in 2023 reached 142,659, an increase of 8.9% over the previous year, setting a record high since 2016 when comparable data was available.
The main reason for the increase in the number of newly registered companies is that policy support has driven the recovery of the Japanese economy after the epidemic. The Japanese government set a goal of establishing 100,000 startups in 2022 and strengthened support. For example, tax incentives to promote investment in emerging companies will be expanded from fiscal 2023. The Japan Finance Corporation will increase the amount of unsecured and unsecured loans as entrepreneurship support from fiscal 2024.
Environmental changes such as digitalization have also driven this trend. Professor Uesugi Takeichiro of Hitotsubashi University, who is familiar with the dynamics of small and medium-sized enterprises, believes that “with the popularization of online meetings, the threshold for starting a business in the local area has been lowered.” In 2023, the business opening growth rate in Akita Prefecture and Iwate Prefecture compared with the previous year reached double digits, comparable to Tokyo and Osaka Prefecture.
Continuous improvement of social security is also a major reason for the increase in entrepreneurship. On July 1, the first health insurance organization for people working in startups was established. Compared with traditional insurance for small and medium-sized enterprises, the insurance premium rate is lower and the burden on enterprises is lighter.
As entrepreneurship increases, more and more companies are exiting the market. In Japan, the number of deregistrations increased to 43,187 in 2023, up 14.5% from the previous year. The number of bankruptcies in 2021 fell below 6,000 for the first time in 57 years, but exceeded 9,000 in 2023. This is because the interest-free, unsecured “zero-zero loans” that were once the main means of coping with the crisis have begun to be fully repaid.
“Even with government support, performance cannot be restored,” said a man who runs more than 10 restaurants centered in the Tokyo area. In the spring of 2023, his company was ordered to initiate bankruptcy proceedings. The comfortable environment is changing. Yoshihiro Sakata of Tokyo Shoko Research predicts that “due to rising prices and labor shortages, the number of companies that will close or go bankrupt will increase further in the future.”
The sustainability of the startups that have been born one after another will also be tested. Looking at the ratio of the number of bankruptcies divided by the number of surviving companies, the ratio of companies that have been in business for less than 10 years is 6 times that of old companies that have been in business for more than 30 years. In particular, the bankruptcy of limited liability companies (contract companies) is particularly prominent. Compared with joint-stock companies (Kaisha), the establishment procedures of limited liability companies are simple and the cost is low, so the number of limited liability companies has increased sharply. New companies should not only pursue quantity, but also ensure quality.
Overall, the vigorous metabolism of enterprises is indeed conducive to economic development. If you compare it within the G7, you will find that countries with active business openings show a trend of higher actual economic growth rates. The business opening rate in the United States has been close to 10% in the past five years, and the average economic growth rate has reached 2%. Japan’s business opening rate is 4.4%, and the average growth rate is negative 0.1%.
Takuto Murase of the Japan Research Institute emphasized: “Competition leads to the survival of the fittest among companies, which is a manifestation of a sound market mechanism. Today, after the crisis, policies should be changed to encourage new companies to enter the market, encourage companies to adjust their business structure, and invest in growth areas.”
Inflation will bring pressure for wage increases and will also lead to rising interest rates. In the “interest world”, companies need to be more capable. Companies with technology and creativity compete for survival and bring vitality to the market. The metabolic trends of enterprises will become a barometer of Japan’s economic revitalization.