Cost accounting in small and medium sized Japanese companies: an exploratory study

Research on Japanese management accounting in the past decade has grown but knowledge of Japanese cost accounting, e.g. target costing, continuous cost reduction, has tended to be drawn from large, internationally successful firms rather than small and medium sized enterprises (SMEs). Moreover, Japanese practices are not static: changing socio-economic circumstances may be exerting significant pressures for cost management changes. The research was based on 13 company visits and semi-structured interviews in SMEs in Kyushu—mainly in manufacturing. Their costing systems proved to be similar to those of larger Japanese firms. Costing systems and cost management practices, though not uniform, emphasised simple routine accounting. They were not used extensively for decision-making or performance evaluation. However, sophisticated detailed processes of cost management, often centred on engineering and quality control, were the norm. The report closes with details of two contrasting companies. One was a traditional small subcontractor struggling to survive: the other was a scientific research-based organisation with unusual and innovative control systems. The paper speculates that there may be extremities representing the past and future in the wake of global competition and changes in the banking sector. Increased pressures within supply chains coupled to new pressures from capital markets are forcing SMEs to adopt the cost management systems of their larger counterparts and, at the margins, to experiment with new forms of control that are more profit oriented. Failure to do so may be a factor in the currently high mortality rate of SMEs.