Companies in Japan are closing or suspending business at a record pace in the wake of the novel coronavirus outbreak, with the number of such cases already reaching about 36,000 this year.
Many small and midsize companies have given up on continuing their businesses due to a shortage of successors. The pandemic-driven downturn has exacerbated the difficulty of guiding such businesses through the succession process.
According to Tokyo Shoko Research Ltd., 35,816 companies chose to close or dissolve their businesses in the January-August period, a 23.9% increase from the same period last year. It accounts for 1% of all the about 3.6 million companies in the nation.
The figure is expected to beat the record high of 47,000 seen in 2018 and surpass 50,000 this year.
Most of the companies are small and midsize. One eatery owner who closed shop said, "If the situation continues like this, I won't be able to repay my debts, and that will cause trouble."
Another operator of a company that installs building equipment said, "I was already unsure about whether to continue my business because of my old age."
In 2017, the Economy, Trade and Industry Ministry estimated that one-third of about 3.6 million companies nationwide would be forced to close their businesses by around 2025, due to a shortage of successors.
Many companies are believed to have decided to close their businesses ahead of schedule as a result of the economic downturn.
Unlike bankruptcies, in which business operators are unable to repay debts, when operators close or suspend their businesses, the impact on financial institutions and business partners is relatively small.
As Tokyo Shoko Research pointed out, many operators want to close their businesses while they still have enough management power.
On the other hand, the number of firms gone bankrupt has been hovering at the lowest level in 30 years. The number of bankruptcies in the April-September period stood at 3,858, down by 9.3% from the same period last year and the lowest level since 1991, according to Tokyo Shoko Research.
The government and the Bank of Japan have raised the size of their support program to 100 trillion yen, including measures to help companies that have been hit hard by the virus crisis. Despite declining sales, many companies have been able to secure funds through loans from financial institutions, which has helped them avoid bankruptcy.
To prevent small and midsize companies from losing skilled workers and technical expertise, it is necessary to proceed with efforts to prompt successful business handovers.
According to a survey by the Organization for Small & Medium Enterprises and Regional Innovation, Japan, a record-high of 11,514 consultations were received by business succession support centers nationwide in fiscal 2019. The number of successful contracts reached 1,176, exceeding 1,000 for the first time.
"Companies are doing their best to hold off [discontinuing their businesses]. We hope appropriate support measures will be enhanced to boost business successions as well as mergers and acquisitions," said Akio Mimura, chairman of the Japan Chamber of Commerce and Industry.
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