#Japan #Digital Transformation #Tokyo #Small Business #Green Transformation

Challenges Faced by Small Enterprises in Japan

In the current economic landscape, small businesses in Japan are lamenting the struggles of labor shortages in a rapidly changing environment. The 2025 Third Survey on Small Business Management conducted by Foval GDX Research Institute highlighted that a significant 53.6% of small business owners recognize talent acquisition and development as critical issues. With labor shortage-related bankruptcies reaching alarming levels, it is imperative for these businesses to adapt and innovate.

Economic Pressures

The recent years have been marked by fluctuating economic conditions. Rising prices, increasing costs of raw materials, the persistent depreciation of the yen, and an overall shortage of human resources are posing serious challenges for many small businesses. As stated by Teikoku Databank, 2025 reported the highest number of bankruptcies (427) attributed to labor shortages for the fourth consecutive year. Under these harsh conditions, business owners must strategize effectively, ensuring not only profit but also sustainability in their operations.

Survey Insights

Labor Challenges

Interestingly, the survey indicated that labor acquisition issues are taking center stage. Nearly 50% of business leaders are striving to train and secure talent amid these shortages. Following this, 44.1% are focusing on the expansion of existing businesses, indicating a dual focus between talent and growth.

Solutions Adopted

Small businesses are keenly aware of the need for innovative solutions. The primary strategies employed include:

• - Talent Development and Organizational Reform: 31% of business leaders are investing in improving their workforce.
• - Cost-Cutting and Financial Review: 28.1% of respondents indicated a focus on optimizing their financial structures.
• - Consulting External Experts: This approach has attracted 26.7% of responses, suggesting a willingness to seek outside guidance for improvement.

Moreover, over 50% reported experiencing at least moderate effects from these strategies, especially in consulting external experts, showcasing the overwhelming consensus on the need for strategic reforms.

Recruitment Realities

On the recruitment front, half of these businesses are actively hiring or ramping up efforts. Nevertheless, many face the harsh reality of finding well-qualified candidates—39.5% report difficulties in locating talent with the requisite skills and experience.

Shifting Mindsets

To counteract these staffing woes, companies are encouraged to diversify their hiring methods and consider mid- to long-term investment strategies rather than immediately seeking experienced hires. This shift to a potential-based hiring approach could alleviate some pressure from the ongoing talent drought, especially in a landscape marked by decreasing labor demographics and heightened turnover rates.

A Broader Perspective

The need to cultivate a supportive workplace environment that encourages retention is increasingly vital. Organizations must prioritize strategies that do not just focus on filling vacancies but also enhance employee satisfaction to bolster loyalty.

The Role of Foval GDX Research Institute

Founded to observe and facilitate knowledge regarding Green Digital Transformation (GDX) among small businesses, Foval GDX Research Institute, led by Manabu Taira, seeks to empower these enterprises by researching their challenges and fostering sustainable growth.

Notably, Taira emphasizes, "Ensuring retention and cultivating talent is crucial for maintaining stable operations and growth in these fast-paced times." His response echoes the sentiments of many surveyed who see the elevation of workforce quality as essential for navigating today's complex business ecosystem.

This realization is not just critical for individual firms but imperative for the overall vitality of Japan's economy, characterized by a robust backbone provided by its SMEs. The Foval GDX Research Institute continues its mission to support and elevate small enterprises as they transform through green and digital strategies.

For more insights and ongoing research on how small businesses can thrive amid these challenges, visit Foval GDX Research Institute.