Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: On a sunny day in April in Matsue, a small
Speaker 2: city on the western coast of Japan, a speaker stands
Speaker 2: at the front of a classroom, hands on the podium,
Speaker 2: encouraging the people in the room to stand up for themselves.
Speaker 2: I scol you so at the core of Google last week.
Speaker 1: You have to make your voices hard. You know what
Speaker 1: I'm talking about, right. I want you to raise your
Speaker 1: boys more and more.
Speaker 2: The roughly twenty or so people in the classroom pay
Speaker 2: close attention, taking notes diligently from their seats, whilest some
Speaker 2: nod their heads as echo. Kanonji, a veteran negotiator, continues on.
Speaker 1: The goal of any negotiation is to find the best
Speaker 1: outcome for both parties. Know your style, Understand whether you're
Speaker 1: coolly anriged goal or engaging Greek friendly.
Speaker 2: It sounds like the kind of negotiating seminar or business
Speaker 2: class you might expect to find at a high school
Speaker 2: or college. But the people here today are not students.
Speaker 2: Many of them are managers and salespeople in their mid
Speaker 2: thirties and upwards. They work for small and medium sized
Speaker 2: businesses in Japan, and they've come here because they desperately
Speaker 2: need to learn a skill they haven't needed to use
Speaker 2: in ages, how to raise prices.
Speaker 1: The tide is finally turning after thirty years, the power
Speaker 1: brands is changing. Now is your chance?
Speaker 2: So why are people who have already been in business
Speaker 2: for years taking a class on how to raise prices?
Speaker 3: Now?
Speaker 2: Well, after decades of prices pretty much standing still falling
Speaker 2: in Japan, things are starting to change. Costs are rising
Speaker 2: in Japan, and that's put smaller and medium sized companies
Speaker 2: in the country in a tricky spot.
Speaker 3: So the smaller companies in Japan are getting squeezed because
Speaker 3: what's happening for them is that they're paying more for electricity,
Speaker 3: they're paying more for raw materials, parts and components.
Speaker 2: Reed Stevenson is a senior editor at Bloomberg News based
Speaker 2: in Tokyo.
Speaker 3: And then their employees are coming to them and saying, look,
Speaker 3: we have to spend more just to put food on
Speaker 3: the table every month. You know, can you raise our
Speaker 3: wages to survive?
Speaker 2: These businesses will need to raise their prices, and whether
Speaker 2: or not they are successful has huge implications for Japan's
Speaker 2: economy overall because smaller medium sized businesses like these are
Speaker 2: a critical part of the Japanese economy.
Speaker 3: They actually make up ninety percent of the companies in
Speaker 3: Japan and employ the vast majority of people.
Speaker 2: And Japan's central Bank is really paying attention to what
Speaker 2: happens at these companies because after years of unconventional monetary policy,
Speaker 2: the Bank of Japan believes the economy may finally be
Speaker 2: moving away from decades of deflation and towards some healthy
Speaker 2: price increases. They've already raised borrowing costs earlier this year,
Speaker 2: and this week they'll decide on whether they will raise
Speaker 2: rates again. Welcome to The Big Take Asia from Bloomberg News.
Speaker 2: I'm Rebecca Chung Wilkins. Every week we take you inside
Speaker 2: some of the world's biggest and most powerful economies and
Speaker 2: the markets, tycoons and businesses that drive this ever shifting region.
Speaker 2: Today on the show, can small and medium sized businesses
Speaker 2: in Japan learned to raise their prices? And what could
Speaker 2: happen to Japan's economy if they don't. To help us
Speaker 2: understand how Japan got to this place where people literally
Speaker 2: need to take a class to learn how to raise prices,
Speaker 2: I asked reed to take us back to what's known
Speaker 2: as Japan's Lost decades, which started in the nineties after
Speaker 2: a massive asset bubble burst.
Speaker 3: Once that bubble burst, essentially the Japanese government engineered what
Speaker 3: you can call an ultrasoft landing. So it took really
Speaker 3: more than a decade for all of that to be resolved,
Speaker 3: for bad loans to be written off, and by the
Speaker 3: end of that decade or at least a decade plus,
Speaker 3: Japan found itself in a deflationary environment, and so prices
Speaker 3: were going down, and the central bank essentially stepped in
Speaker 3: and cut rates to zero and then to blow zero
Speaker 3: to try and prop up the economy. But for some reason,
Speaker 3: when you get into a deflationary cycle, it kind of
Speaker 3: builds on itself. People spendless and it keeps going and going,
Speaker 3: and people got used to not paying more, and so
Speaker 3: if you think about it, people in their sort of
Speaker 3: late thirties, forties and even fifties in Japan had never
Speaker 3: really had to step into a situation where they had
Speaker 3: to negotiate and push for the person on the other
Speaker 3: side of the table to pay more.
Speaker 2: But with rising raw material prices after the pandemic, a
Speaker 2: steadily weakening yen and a mild economic recovery, prices are
Speaker 2: pitching up again in Japan.
Speaker 3: If you're a consumer, you're seeing this happen at the
Speaker 3: grocery store. So you're paying anywhere from maybe fifteen to
Speaker 3: twenty percent more for a carton of milk. You're paying
Speaker 3: more for vegetables, and consumers are feeling the pinch.
Speaker 2: All of this has prompted the Bank of Japan or
Speaker 2: the BOJ, to finally switch gears and move away from
Speaker 2: this notion of keeping interest rates below zero. In March,
Speaker 2: for the first time in seventeen years, the BOJ raised
Speaker 2: borrowing costs to zero, well between zero and zero point
Speaker 2: one percent, and read says, what the BOJ is hoping
Speaker 2: to see.
Speaker 3: Here is this sort of healthy cycle where higher wages
Speaker 3: feed into more spending, into a sort of robust but
Speaker 3: manageable level of inflation.
Speaker 2: The idea is that if people make more money, they
Speaker 2: can afford to spend more, and so prices can go up.
Speaker 3: So that you really get the economy essentially working like
Speaker 3: it used to many decades ago.
Speaker 2: So I guess the big question is is the boj's
Speaker 2: plan of raising borrowing costs actually working so far?
Speaker 3: This policy is working for the larger companies, especially if
Speaker 3: the export, because obviously they can command higher prices abroad
Speaker 3: where there are in fact, quite significantly inflationary environments.
Speaker 2: Essentially, what Read is saying here is that big brands
Speaker 2: like Toyota or Uniclo or seventy eleven have an advantage
Speaker 2: because they can sell outside of Japan in places where
Speaker 2: prices are just generally higher right now because of inflation,
Speaker 2: So they can charge more for their products in those
Speaker 2: places and raise prices, and with higher prices, bigger companies
Speaker 2: have been able to pay their employees more.
Speaker 3: For example, this spring, workers at the biggest companies in
Speaker 3: Japan won their biggest annual wage hike in like thirty
Speaker 3: four years, about five point one.
Speaker 2: Percent small and medium sized businesses, Reed says, it's a
Speaker 2: different story.
Speaker 3: The smaller medium sized companies that really make up the
Speaker 3: bulk of the Japanese economy. This cycle doesn't appear to
Speaker 3: have kicked in just quite yet.
Speaker 2: Why is it that smaller businesses, like the ones that
Speaker 2: are going to the class that you attended, why aren't
Speaker 2: they seeing the same kinds of benefit.
Speaker 3: What you have to understand is that the small and
Speaker 3: medium sized businesses in Japan are very often at the
Speaker 3: mercy of their customers, which are very often larger companies,
Speaker 3: and the larger companies, for decades now, were able to
Speaker 3: dictate the terms of the business relationship. And it reminds
Speaker 3: me of an interesting phrase that you hear in Japan,
Speaker 3: which is ikosazu korosazu, which roughly translates as don't let
Speaker 3: them live, but don't let them die. And this was
Speaker 3: actually a term that was used by feudal lords hundreds
Speaker 3: of years ago about how peasant farmers should be treated,
Speaker 3: but it actually came up over the modern era, the
Speaker 3: post war economic era, as a way to treat suppliers,
Speaker 3: to treat the smaller companies that serve the larger companies
Speaker 3: basically keep them alive enough to provide parts and goods
Speaker 3: and services, but never let them die.
Speaker 2: And on top of this rigid power dynamic that's been
Speaker 2: entrenched for years, there's a cultural element here at play too.
Speaker 3: There's a certain element of being seen as greedy. So
Speaker 3: rather than laying out a rational argument and using data
Speaker 3: and evidence to pressure case, there's a fear by these
Speaker 3: smaller companies that they might be seen as greedy or
Speaker 3: taking advantage of a situation where really all they're trying
Speaker 3: to do is just keep their business afloat.
Speaker 2: But now more than ever, these small companies need to
Speaker 2: figure out how to raise their prices fast after the break,
Speaker 2: how the Japanese government is stepping in to support small businesses,
Speaker 2: and what a failure to raise prices could mean for
Speaker 2: Japan's economy. To the outside world, Japan is enjoying a resurgence.
Speaker 2: Famous investors like Warren Buffett are talking up the market.
Speaker 2: Stocks have finally surpassed their nineteen eighty nine peak, and
Speaker 2: everyone is traveling to Japan right now. But it's another
Speaker 2: picture for smaller corporations. Many are facing higher prices for
Speaker 2: raw materials and components, and their workers want wage increases
Speaker 2: to cover these things. These companies will need to figure
Speaker 2: out how to raise prices, and Bloomberg to Reed, Stevenson says,
Speaker 2: there's real stakes here. If they can't read what happens
Speaker 2: to these businesses. If they can't figure it out and
Speaker 2: don't raise their prices, well they will go.
Speaker 3: Under and then on a macro scale, essentially you will
Speaker 3: not get the kind of economic activity that the central
Speaker 3: bank and the government is looking for.
Speaker 2: Given how important small and medium businesses are to the
Speaker 2: economy of Japan and the ruling party, what is the
Speaker 2: government doing.
Speaker 3: Several years ago, the Japanese government actually identified this choke point,
Speaker 3: and the Japan Fair Trade Commission was actually tasked with
Speaker 3: going out and really pushing for the fair treatment of suppliers.
Speaker 3: And so what the Japan FTC did was employed this
Speaker 3: sort of interesting tactic of naming large companies that were
Speaker 3: abusing their dominant bargaining position. And so in fact, the
Speaker 3: Japan FTC actually took the step of publicly reprimanding Nissan
Speaker 3: Motor Company for cutting a significant amount of money in
Speaker 3: payments to suppliers, and so Nissan paid in full some
Speaker 3: of these payments, and then the president and chief executive
Speaker 3: officer ended up apologizing and taking a thirty percent pay cup.
Speaker 2: The government is clearly trying to help pair, but when
Speaker 2: it comes time to ask for more money, it will
Speaker 2: be the people from these smaller medium companies who actually
Speaker 2: need to do that to say to the bigger companies,
Speaker 2: I am raising my prices. Read. Did the people who
Speaker 2: you met in that negotiating class in Matsue seem confident
Speaker 2: that they could do it? Did they say the class
Speaker 2: was helpful.
Speaker 3: Yes. In the class after it was over, I met
Speaker 3: Korgi Shidatski. He's what you might call a COO or
Speaker 3: close to a CEO at a small manufacturer in the
Speaker 3: city of mats And he is in his mid forties,
Speaker 3: and when I was talking to him, he told me
Speaker 3: he never really did have to ask for more money
Speaker 3: from his customers. So he came to the class and
Speaker 3: was really kind of relieved to learn that there were
Speaker 3: techniques that he could use to sort of build a
Speaker 3: convincing argument to raise his own prices. For example, without
Speaker 3: having to reveal your own cost structure, you can point
Speaker 3: to publicly available information such as you know, the rising
Speaker 3: market price for copper, or rising costs for electricity and
Speaker 3: gas and et cetera.
Speaker 2: How will we know if classes like this are working
Speaker 2: and if smaller companies are able to raise their prices.
Speaker 3: The first sign that this is starting to work should
Speaker 3: start to appear in wage gains among small and mid
Speaker 3: sized businesses in Japan.
Speaker 2: So basically we'll see these businesses starting to pay their
Speaker 2: workers more.
Speaker 3: Yes, and then you're probably going to start to hear
Speaker 3: language from the Bank of Japan saying that they're seeing
Speaker 3: signs of healthy inflation, that inflation and price gains are
Speaker 3: being driven by legitimate or normal economic activity, as opposed
Speaker 3: to being driven by factors that are largely out of
Speaker 3: the control of policymakers, such as the higher yen, or
Speaker 3: important inflation, or higher energy prices.
Speaker 2: Reed says it will take time to see if the
Speaker 2: government's efforts to support small businesses and classes like the
Speaker 2: one he went to in Matsue actually work. But Reed
Speaker 2: did have one last burning question for the expert, Neugosti
Speaker 2: Ko Kanunji.
Speaker 3: So that's when I sort of asked him in fact,
Speaker 3: you know, had he raised prices during his two decades
Speaker 3: or so of doing price negotiations or even in the
Speaker 3: more recent months and couple of years when his services
Speaker 3: were really in demand. And you get that sort of
Speaker 3: answer that you're surprised and not surprised to hear, which
Speaker 3: is that he himself has never raised his own prices.
Speaker 2: Thanks for listening to The Big Take Asia podcast from
Speaker 2: Bloomberg News. I'm Rebecca Cheung Wilkins. This episode was produced
Speaker 2: by Naomi Young Young, Jessica Beck, and Adrianna Tapia, who
Speaker 2: also fact checked it. It was mixed by Blake Maples.
Speaker 2: It was edited by Caitlin Kenny, Rachel Chang, and Tom Redman.
Speaker 2: Special thanks to Yasufumi Saito. Our senior producers are Naomi
Speaker 2: Shaven and Kim Gettelson, and our senior editor is Elizabeth Ponson.
Speaker 2: Nicole Beamster bor is our executive producer, and Sage Bauman
Speaker 2: is Bloomberg's head of podcasts. Please follow and review The
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