Business

Japan's small firms struggle to stay afloat after quake

Tokyo skyline
Image caption The number of foreign visitors fell by half in March as tourists were scared off by fears of radiation.

Japan's first quake-related bankruptcy did not happen in the epicentre of the devastation. It happened in Fukuoka, more than 1000km away.

BIC is a 22-year-old company organising concerts in the southwest island of Kyushu.

It was already struggling with weak sales. When it filed for bankruptcy on 18 March, it had a total debt of 150m yen ($1.8m; £1.1m).

According to documents filed to the Fukuoka District Court, cancellations of popular events due to the earthquake were the final blow.

"What is different about this earthquake is, it is affecting businesses in various industries and across Japan - not just in the north east," says Akira Oohira of Tokyo Shoko Research.

"After the Kobe earthquake in 1995, more than 85% of the bankruptcies were filed in the Kansai area, mainly in manufacturing.

"The impact was very direct. Factories were damaged or companies could not get hold of key components."

Lingering effect

After the 11 March earthquake, however, there have been many other challenges have pushed businesses to the brink of bankruptcy.

In the entertainment industry, for example, fears of radiation prompted many foreign performers to cancel their shows in Japan. More than 1,300 concerts have been postponed indefinitely.

Japan's biggest classical music festival, La Folle Journee au Japon, which begins this Thursday, has seen more than two thirds of the scheduled musicians pulling out.

Another challenge for businesses is Jishuku, the voluntary self-restraint mood that people have been in.

"Travel agents and hotels are also affected because jishuku," says Mr Oohira of Tokyo Shoko Research.

"Out of solidarity with those in disaster-hit areas, people are cancelling their trips to enjoy hot springs for example."

By 26 April, some 22 firms hade gone bust because of the earthquake. and a further 27 had started their preparations to file for bankruptcy, too.

Out of the 49 companies, there were eight hotels and three travel agents.

Direct impact

It is still difficult to assess the state of many companies in the quake-hit region.

Eight of the 49 companies, however, were directly affected by the earthquake.

Image caption Fears of radiation prompted Japan's trading partners to ban some imports.

The Nakasan chain of department stores is among them.

Its Morioka store in Iwate Prefecture was forced to shut its door after an explosion caused by gas leakage at the basement floor on 11 March.

Its two other stores in Aomori Prefecture also faced a sharp fall in sales after the earthquake.

Its total debt of 11.5bn yen is the biggest so far.

E-tex in Iwate Prefecture is another firm that was directly affected.

Founded in 1965, it used to sell marine engines and old vessels. Many of its products, however, were swallowed up by the 23-metre tsunami when it hit the coast of Ofunato on 11 March.

Their telephone line has been disabled so they could not be reached for a comment, but its total debt was around 50m yen.

Small and Medium-size firms

Many other firms that are filing for bankruptcy are small and medium-sized businesses.

So far, seven out of the 49 companies had debts of more than 1bn, which means 85% of them were small businesses.

This trend is likely to continue.

After the Kobe earthquake, 256 companies filed for bankruptcy by the end of 1996.

Only 16 companies, or 6%, had more than 50 employees, while 39 companies, or 15%, had debts in excess of 1bn yen.

The pessimistic mood is evident in a monthly survey conducted by the National Federation of Small Business Associations.

"The result for March was much worse than expected," says Masaru Oikawa of the Federation.

"Small businesses are suffering much more than after the Kobe earthquake or the Lehman shock."

The government has freed up funds for them.

Financial institutions are also doing their part to prevent cash-flow problems and a domino effect resulting in further bankruptcies.

Norinchukin bank, for example, is offering interest-free loans worth $36.7bn to farmers and fishermen.

"So far, there are enough funds and that's why we haven't seen too many bankruptcies yet," says Mr Oikawa of the National Federation of Small Business Association.

"But our bigger concern is harmful rumours, which are affecting not only our food exports, but also manufactured goods.

"The government needs to communicate better with our trading partners to assure them that our products are safe."

As the crisis at the Fukushima power plant continues, many in Japan are beginning to call the last part of this triple disaster - earthquake, tsunami and nuclear - a man-made catastrophe.

If history is any indication, small businesses are likely to struggle for many years to come.

But how badly will depend on how the nuclear crisis is handled.

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