Support for Medium-Ranking Firms: Encourage Their Growth to Regional Economies

Editorial

17:31 JST, February 26, 2024

A new category of medium-ranking companies — between large firms and small and midsize enterprises (SMEs) — has been devised by the government in a bid to encourage their growth. It is hoped that this move will help boost the overall level of the Japanese economy and create a ripple effect for wage increases.

The envisaged category will be created by amending the Law on Strengthening Industrial Competitiveness, which encourages companies to make capital investments and restructure their business. A bill to revise the law has been approved by the Cabinet, and the government will submit it to the current Diet session with the aim of having the law take effect this year.

Under the current law, manufacturing companies with 300 or fewer employees, or ¥300 million or less in capital, are categorized as SMEs, while the rest are classified as large enterprises.

Of these large firms, the bill will categorize enterprises with 2,000 or fewer employees as medium-ranking companies.

According to the Economy, Trade and Industry Ministry, about 1,300 companies will be categorized as large enterprises, and about 9,000 as medium-ranking companies under the new classification. Akagi Nyugyo Co. in Saitama Prefecture, widely known for its GariGarikun ice pops, and Snow Peak, Inc. in Niigata Prefecture that handles outdoor equipment are said to be among those that will fall under the new category.

Unlike large companies, which tend to pay significant attention to overseas projects, many medium-ranking companies are rooted in their regional communities, thus providing jobs to local residents. It is understandable that the government is aiming to make these firms the driving force of local economies by providing them with intensive support.

In Japan, generous support is provided to SMEs, with much preferential treatment in such areas as funding and taxation.

There are few such measures available for large companies. Therefore, companies tend to be reluctant to expand their scale, even if they are capable of changing into a large company, because they feel that such a transition would put them at a disadvantage.

The government will establish a new preferential bracket for medium-ranking companies in the tax system to promote wage increases.

For large companies that raise wages by 7%, their corporate taxes will be lowered by 25% of the total amount of the wage increase. If the wage increase is less than 7%, the deduction rate will be reduced. Medium-ranking companies will be able to receive a 25% deduction even for a 4% increase in wages.

The bill will also designate medium-ranking companies that have high wage levels and actively invest domestically as specified medium-ranking companies and encourage them to expand their business through mergers and acquisitions.

If a specified medium-ranking company conducts two or more M&As, its tax burden will be reduced by allowing a greater percentage of its reserves for future losses to be declared as deductible expenses.

Many SMEs are struggling to find people to carry on their business. The government said it will promote SMEs’ M&As with medium-ranking firms to encourage the continuation of their operations.

It is important to create an environment that makes it easier for willing companies to raise wages and expand their business. It is hoped that the government will work to make the relevant system widely known to the public and consider further strengthening support measures.

(From The Yomiuri Shimbun, Feb. 26, 2024)