Struggling, Managing, or Excelling

How some European and Japanese SMEs have been faring during the pandemic

MAY 2021 Feature / Text by Gavin Blair

SMEs are the backbone of the economy in both Europe and Japan, but many of them have been particularly hard hit by the pandemic and face an uncertain outlook, despite government support schemes. Meanwhile, others have successfully adapted their strategies to the shifting landscape — and some have even flourished.

A survey by McKinsey of more than 2,200 SMEs in five European countries published in October found that revenue had fallen at 70% of these firms, and more than half were concerned whether they would still be in business in a year, even with government aid. Similarly, a survey of more than 18,000 SMEs in Japan by NHK and Dai-Ichi Life found that 68% had seen revenue fall.

One sector suffering in the pandemic is dry cleaning. With more people working from home and fewer going out in the evening, demand for cleaning of both work and leisure clothing has fallen. It was already an industry operating on slim margins, and the pandemic has pushed some businesses into bankruptcy and left others barely hanging on.

“Sales were down about 50% last year,” reports Taku Akamatsu, owner of Kanagawa Gomi Cleaning Center, a chain of 12 shops.

To try and make up for lost business, the company has branched out into providing cleaning services for sports teams, eateries, and other shops. Costs have been reduced by shortening business hours and closing one day a week. After the second state of emergency was lifted in Kanagawa, business improved, but sales were down 30% from pre-pandemic levels.

The company received the ¥2 million government grant for SMEs, but Akamatsu points out that it didn’t even cover half of his wage bill for a single month. He had no option but to take out a large loan from the bank, which he is concerned about being able to pay back.

“The government has provided a lot of subsidies for eateries, but I don’t understand why there has been so much focus on them; there are a lot of sectors suffering. We really need more government support,” says Akamatsu. “When I borrowed the money from the bank, I could choose between starting to pay it back in three or five years. I chose three as I wasn’t sure if there would still be a company in five years.”

One company that may have benefited from people spending more time at home is Scandinavian Living, a purveyor of furniture and other interior products from northern Europe. Headquartered in Denmark, with offices in Tokyo and Kobe, the firm grew around 20% last year, though CEO Henrik Kohberg is not sure how much of that is due to the rise in working from home.

“We’ve worked for 30 years on convincing customers to spend more on their houses … rather than spending it all on fashion,” says Kohberg.

While the reduction in travel has saved the firm a lot of money, Kohberg says that shipping costs have increased, especially on occasions they have been forced to use air freight to prevent long delivery delays resulting from cancellations of sea freight sailings.

He is also looking forward to welcoming customers back to showrooms.

“People really need to touch and feel our furniture,” he says. “It’s not something you buy from a catalogue.”

The pandemic has had an impact on both the European and Japanese sides of Tokyo-based Jean Barthélemy Consultancy’s business. The firm advises mostly French SMEs operating in Japan, and Barthélemy himself acts as a local representative for some of those companies.

Revenue at the consultancy fell last year, but not by the 50% in a single month required to qualify for government assistance, says Barthélemy, though two of the firms he represents were able to receive the ¥2 million in support.

“There are inevitably opportunities being lost because people can’t visit Japan to have face-to-face meetings and a meal together,” Barthélemy says. “The travel ban is slowing down the launch of new projects, which will be felt further down the line.”

One of his hardest-hit clients is a small French jeweller, which has suffered from the cancellation of sales events at department stores, and another is a French medical software supplier, whose hospital and clinic clients have delayed IT investment due to the focus on the pandemic.

Barthélemy suggests that the current challenges for SMEs come on top of structural issues around the cost of doing business in Japan, including difficulties in opening bank accounts, receiving loan approvals, and “outrageous fees” for overseas remittances.

On the plus side, Barthélemy says that the travel ban has made his work as a local representative for European SMEs even more crucial.

Belgium’s Vondelmolen, a family-owned maker of spice cakes since 1867, has also experienced mixed fortunes.

“The retail side is doing well, but food service is a disaster,” says Marc Creupelandt, senior sales manager at Vondelmolen’s base in Lebbeke, East Flanders.

Expanding its export channels has been difficult in the current climate, but Creupelandt hails the efforts of Flanders Investment & Trade (FIT), which stepped up when the major confectionery and food fairs in Europe were cancelled or downsized last year. FIT Japan organised food fairs at the Belgian Embassy last October and in March, inviting selected Japanese buyers to sample products.

“This was a huge success and I’m looking at a minimum of three new Japanese clients,” explains Creupelandt, who says that acquiring just one new customer is a typical result from the major trade fairs.

FIT has also provided subsidies for Vondelmolen to enter the Chinese market, where it is in the process of securing a new client and currently carrying out “a massive sampling campaign”, Creupelandt reports.

Strong retail sales and some international growth helped maintain turnover last year, according to Creupelandt. It has also helped to preserve the jobs of Vondelmolen’s approximately 90 employees.

With SMEs in the EU and Japan accounting for more than half the GDP — and an even higher proportion of employment — their fate will be closely tied to that of the economy as we emerge from the pandemic.  •