Under Pressure

I. Title: Under Pressure, Source: The Economist, Date: March 6th
http://www.economist.com/business/displaystory.cfm?story_id=10808465

II. Summary:
Small and medium sized enterprises (SMEs), the bedrock of Japanese industry, may face difficultly. In Japan, big companies like Toyota, Sony, Canon, and others depend on small to medium enterprises. For example, Densho specializes in cleaning parts for semi-conductors and thinning glass for cell phone screens. Although Densho is thriving, it is not the norm. Many SMEs are miserable and business sentiment is at a 5-year low. One of the reasons for this is that big businesses (Toyota, Sony, Canon...) put pressure on the small enterprises to lower prices, because the SMEs each depend on an anchor company, they are forced to give in and this caused a decrease in workers' salaries and productivity. Also, many Chinese businesses offer to charge less for better quality. Weak companies are kept alive by easy bank loans. Politicians pressured small and regional banks lend on generous terms. The government has recently taken measures to aid the SMEs. For example, they will provide subsidies to compensate for rising prices in energy and make it even easier for small businesses to get loans. Unfortunately, none of this will magically fix the problems with SMEs and eventually the failing SMEs will either bust or be taken over, but in due time.

III. Reactions:

• This article relates to the theme of creation, expansion and interaction of economic systems. This is because the article is about business and specialization in Japanese Industry.
• This issue is not new, alot of the SMEs today date all the way back to 1560. For example, NBK started as a foundry producing pots, temple bells and lanterns for the imperial family. Also, many SMEs started after WWII, bosses of these companies are in about their 70's and are ready to give control to someone else.
• The article is written by a British outsider, his/her name isn't given so we don't know the author's gender.
• Due to the fact that the article is focused on Japan and the British author is an outsider, there may possibly some impact on how the issue is being reported. For example, the author may not fully understand Japanese business traditions.
• The point of view missing within the article is that of big business. What would a company like Toyota do if they finally choked the last bit of life out of their SME? They would have to find a new small business, but maybe not for cheaper due to leverage.
• My own reaction to this article is that maybe there is no real solution to this problem. Eventually, the weaker businesses will go bust or be taken over.