PROBLEMS OF SMALL AND MID-SIZED ENTERPRISES IN JAPAN’S SOFTWARE INDUSTRY

Abstract

This paper examines the reasons that most small and mid-sized enterprises (SMEs) in Japan’s software industry do not develop into large firms. Thousands of SMEs are informally organized under several large companies. Those SMEs have experienced difficulty developing into large firms. This industrial structure has remained for several decades. Several papers have already suggested reasons for this phenomenon, but each paper in the literature has given few reasons. This paper analyzes the issue more comprehensively. First, this article surveys the literature and determine several factors that contribute to the issue. Then, this paper demonstrates how they complicate the issue and make it difficult to solve. Finally, the paper illustrates several approaches in an effort to find solutions. The first method is introducing agile modeling and other iterative software development processes. Agile modeling adjusts design change more easily compared with other software development processes. Other iterative software development processes also adjust design change easily compared to the waterfall model. By using these processes, software engineers can avoid long overtime work, which contributes to the difficulties in securing human resource. The second method is for software firms to demand appropriate compensation for each design change. If many Japanese firms did this, overtime work would be shorter, and the working environment of SMEs would improve. Then, SMEs obtain excellent workers. This will help SMEs to grow to large firms.