Economic Security Survey of Japanese Small and Medium-Sized Enterprises

Both states and businesses are increasingly concerned about economic security due to the COVID-19 pandemic and coercive economic behavior from authoritarian actors in recent years. To mitigate the impact of these factors, the Japanese government passed the Economic Security Promotion Act (ESPA) in May 2022, aiming to protect domestic supply chains from economic coercion by foreign countries. The act identifies key industries and critical infrastructure that require extra attention, supports relevant research and development of emerging technologies, and requires businesses to increase their information security for patents of sensitive technologies. The act also offers subsidies to companies to help them comply.

With this new legislation, more research is required to understand the state of implementation and reactions from the Japanese private sector. The Center for International Private Enterprise (CIPE) commissioned a survey of Japanese small and medium-sized enterprises (SMEs) to identify their economic security concerns and reactions to ESPA, which delivered these main findings:

• Most Japanese SMEs identified foreign countries as a primary cause for economic security concerns,
  particularly China, despite the majority of their procurement coming from domestic sources. China
  is the primary foreign market for Japanese SMEs.
• Despite their concerns about foreign risk and their overall awareness of economic risks, the
  overwhelming majority of SMEs have not developed a strategic plan to diversify their supply chains,
  and have not implemented institutional changes to address economic resists, such as diversifying
  their supply chains, market investment, and product sourcing.
• Economic security efforts implemented by the Japanese government, including subsidies for
  companies to support compliance, have not been used to their full potential by companies
  surveyed. Further outreach and support will be needed to expand private sector compliance with
  ESPA mandates on economic security and supply chain resilience.

The survey report ultimately concludes that greater dialogue with and support for the Japanese private sector would enhance ESPA implementation and address Japan’s economic security concerns.