In the 23 years that Koji Shiratsuki has worked for Hinoden Electric Industries Ltd., the company hardly ever asked customers to pay more. Now it needs to -- and nobody there knows how it’s done, reports Bloomberg.
So the 44-year-old at the control-panel maker in western Japan took an unusual step. He joined a class on negotiating higher prices, a given in most of the rest of the world but a forgotten skill in the Asian country, where decades of deflation had kept prices and salaries frozen in time.
Shiratsuki’s entire career has coincided with a protracted period of stagnation in Japan, the so-called lost decades after an asset bubble burst in the early 1990s. After years of unconventional monetary policy, greater economic activity, as well as a dose of imported inflation, are jolting prices higher. Hinoden now faces rising costs for raw materials and components. If it doesn’t succeed in charging more, its business could be squeezed into oblivion.
“Unless something changes, there will be no company,” Shiratsuki said in an interview, adding he didn’t know whether the collapse would take years or decades, but it would come.To the outside world, Japan is enjoying a resurgence. Inflation is back. Famous investors like Warren Buffett are talking up the market. Stocks have finally surpassed their 1989 peak.
But beyond the giant corporations of Tokyo and other major cities, smaller companies where most people work still find it hard to raise prices. They face pressure from customers -- often bigger firms --- to keep them low. Asking for more money can be frowned upon as greedy in Japan. After years of not having to pay more, people are resistant to change.
But with the Bank of Japan widely expected to raise interest rates, potentially as soon as its two-day policy meeting that starts Tuesday, change is coming. Whether businesses like Hinoden can follow suit and raise prices will ultimately determine whether the $4.2 trillion economy’s much-touted revival is real.
On a sunny day in April, Shiratsuki and a few dozen others assembled in a classroom in Matsue, a city of about 200,000 in a remote western stretch of Honshu, the country’s main island. A foundation promoting local businesses had booked a room in a building atop a verdant hill, just a few minutes’ drive from the city center.
The students -- managers and salespeople from smaller companies in the region -- had come to hear Ikkou Kanonji, a veteran negotiator, speak.“The tide is finally turning after 30 years,” said Kanonji, a bespectacled tall man in gray slacks and a double-breasted navy jacket. “Now is your chance” to raise prices, he said.
The goal of any negotiation is to find the best outcome for both parties, Kanonji explained, speaking softly and precisely. Know your style. Understand whether you’re coolly analytical or engagingly friendly, he said, using feudal warlords from Japanese history as examples. Set clear goals. Prepare alternatives for when things don’t go as planned. “This is not a fight,” he said.
In his presentation, titled ‘Price Transfer Know-How,’ Kanonji tells the inexpert negotiators to do their homework beforehand: 80 per cent of negotiations are determined by the level of preparation, he said. Understand what you can barter and trade off, from payment terms and exclusivity to delivery dates and post-sale services, he adds.
Kanonji left a career negotiating real estate contracts in the apparel business two decades ago to become a full-time instructor. He’s never been as busy as this past year, crisscrossing the archipelago to deliver his message. He’s spoken to truckers in Hokkaido, industrial suppliers in Hiroshima and parts makers in Ibaraki.
The attendees in Matsue have things in common. For one, they all wear sagyogi, the drab workers’ uniforms of Japan’s manufacturing industry, a marker of identity even for people who never go near the factory floor. And to one degree or another, they all see their existence as under threat.
These are the companies caught in the middle, struggling to pass on rising costs. Exporters such as Toyota Motor Corp. benefit from a weaker yen, which boosts the value of overseas profits when brought home. Uniqlo, 7-Eleven and other recognized brands enjoy a certain amount of pricing power with consumers. But the vast network of smaller businesses generally have no such advantages.
“I worry a lot,” said Shiratsuki, referring to the prospect of having to lay off staff if Hinoden can’t raise prices.In a country with little state welfare, companies provide the social security net. People accept lower-paying jobs but in turn they expect to keep them. It’s more group-oriented and less money-focused than hyper-competitive US firms where poor performers are routinely cut.
“We’ve never had to let people go,” Shiratsuki said. “And we don’t ever want to.”In March, the central bank raised borrowing costs for the first time since 2007, ending 14 years of negative interest rates. Governor Kazuo Ueda judged that the virtuous cycle of rising prices and higher wages was “within view.”
But the BOJ remains cautious, partly because the cycle has mainly taken hold at larger companies. This spring, workers at the biggest enterprises won their best annual wage hike in 33 years, of 5.1 per cent. At smaller firms that make up 90 per cent of the economy, the figure was much lower. While consumer inflation stood at 2.8 per cent in June, price gains for food and utilities were higher, taking a bigger chunk out of household spending.