The 13 November edition of Tokyo Shimbun carried an editorial titled “Sayonara, price war management”. It begins with a quote from Prof. Koji Sakamoto of Hosei University’s Graduate School of Regional Policy Design that states, “Reducing prices is like trying to wring water out of a dry dish towel. To achieve profitability, the number of workers is reduced by the greatest extent possible, with working hours extended for those who remain”.
Sakamoto, who was addressing a management seminar, noted that in a survey of small and medium-sized enterprises conducted in January, more than 80% of the respondents agreed that “price is the main source of competitiveness”. Any business ascribing to that philosophy, he asserted, faces a dismal future.
With Japanese wages in the service sector typically some 10 times those of other Asian cities, such as Shanghai or Bangkok (according to Japan External Trade Organization data), the country stands to be priced out of the market. This situation also exacerbates the deflationary spiral, which has hit small firms that supply components, equipment and manpower to the majors.
Is there no solution? One way, the editorial suggests, is to adopt an “only one” management strategy, by which the firm supplies products that are uniquely suited to its capabilities, thereby relieving it from having to continuously cut prices.
One such success story is the beauty salon named Transform, located in the Tokyo suburb of Saginomiya. The salon offers “safe” hair treatments that utilise all-organic shampoo and other preparations, for which it charges ¥14,000—about double the local going rate. Yet the shop is reportedly so popular that it’s become difficult to make an appointment.
In another example of product differentia-tion, an agricultural business based in Shizuoka City has been enjoying high demand from its Ameera speciality tomatoes, which are said to boast twice the sweetness of conventional types.
“With no rise in income, consumers may feel grateful for lower prices”, the writer opines. “But it’s a mistake for business operators to compete on the basis of price alone”.
The fact that some 70% of Japan’s firms operate in the red inevitably leads to a drop in tax revenues, putting a pinch on government programmes. Thus the way to build a robust economy might well be to foster robust management that’s not dependent on price cuts.