Strategic insights into the challenges facing Japan’s small and medium-sized enterprises

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Abstract

Small and medium-sized enterprises (SMEs) play a vital role in driving economic growth, fostering innovation, and generating employment opportunities. The study aimed to introduce a strategic insight into the challenges that face SMEs in Japan. This study employs a holistic approach by using a systematic literature review to explore the multifaceted challenges facing SMEs. SMEs serve as the backbone of the Japanese economy, contributing to over 50 percent of the nation’s gross domestic product (GDP). Representing approximately 99 percent of all businesses in Japan, SMEs employ around 70 percent of the country’s total workforce, underscoring their critical role in sustaining economic stability and employment. Despite their significant contributions, SMEs in Japan face a range of challenges that hinder their growth and sustainability. Key issues include limited access to financing, labor shortages exacerbated by an aging workforce, stagnant labor productivity, and a lack of successors for business continuity. Additionally, the increasingly competitive global marketplace poses further pressure, as Japanese SMEs struggle to match the cost efficiency and service quality of foreign competitors. Emerging economies such as China and South Korea, with their lower production costs, intensify this competition, making it more difficult for Japanese SMEs to maintain their market share. This article has thoroughly discussed and analyzed the challenges confronting the Japanese SMEs, along with the possible policy routes for supporting and promoting the SMEs in Japan.

Keywords: SMEs, Challenges, Japan, Workforce Shortage, Technological Adaptation, Competition, Regulatory Burdens

Authors’ individual contribution: Conceptualization — F.N.; Methodology — F.A.B.; Software — F.A.B.; Validation — S.A.; Formal Analysis — F.N.; Investigation — F.A.B. and F.N.; Resources — F.A.B., S.A., and F.N.; Data Curation — F.A.B.; Writing — Original Draft — F.A.B. and F.N.; Writing — Review & Editing — S.A. and F.N.; Visualization — F.N.; Supervision — S.A.; Project Administration — F.N.; Funding Acquisition — F.A.B., S.A., and F.N.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M13, M191, M38

Received: 13.07.2025
Revised: 23.09.2025; 19.12.2025
Accepted: 13.01.2026
Published online: 16.01.2026

How to cite this paper: Belhaj, F. A., Althuwaini, S., & Nawaz, F. (2026). Strategic insights into the challenges facing Japan’s small and medium-sized enterprises. Corporate and Business Strategy Review, 7(1), 123–133. https://doi.org/10.22495/cbsrv7i1art11