Japan’s Small Businesses Have a Problem. They Don’t Know How to Raise Prices
Jul 29, 2024
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Reed Stevenson, a senior editor at Bloomberg with a focus on economic issues, discusses Japan's small businesses grappling with rising costs. He highlights a negotiation workshop where business owners relearn pricing strategies after decades of deflation. The conversation dives into how these small enterprises, making up 90% of Japan's economy, struggle against larger corporations' wage demands. The potential economic implications of failing to adapt are alarming, yet Stevenson emphasizes the importance of strategic partnerships to navigate these challenging times.
Small Japanese businesses are struggling to adapt to rising costs due to a long history of deflation and price stability.
Relearning negotiation skills has become essential for these firms to effectively communicate necessary price increases without jeopardizing client relationships.
Deep dives
The Need for Price Negotiation Skills
Many small and medium-sized businesses in Japan are currently facing the challenge of learning how to raise prices for their products and services. For decades, a deflationary environment meant that businesses had little or no experience in negotiating price increases. As costs rise for raw materials and employee wages, companies are now realizing that in order to survive, they must adapt and seek out new skills. This necessity has driven business professionals to attend classes on negotiation techniques, helping them cultivate the expertise needed to successfully communicate price increases to clients.
The Economic Landscape and Implications
Japan's economy is heavily reliant on small and medium-sized enterprises, which make up 90% of the country's businesses and employ a large portion of the workforce. As these companies face rising costs, they must consider raising prices or risk going under, which could have dire consequences for the larger economy. The Bank of Japan's recent data suggests that an increase in wages and consumer spending is necessary for a stable recovery. The government's attention to this issue reflects the critical need for smaller businesses to thrive in a shifting economic landscape.
Cultural and Structural Barriers to Price Increases
The reluctance of small and medium-sized businesses in Japan to raise prices is rooted in both cultural and structural frameworks. Smaller companies often perceive raising prices as greedy, risking their relationships with larger clients who dictate terms in the supply chain. Moreover, there is a historical precedent of keeping smaller companies afloat just enough to stay functional without empowering them to thrive. This entrenched dynamic, coupled with the broadly established culture of consensus and reluctance to appear aggressive, complicates the challenges faced when negotiating necessary price hikes.
Costs are rising in Japan and small businesses risk being squeezed into oblivion if they don’t figure out how to raise their prices. After decades of deflation, many small Japanese companies are out of practice on exactly how to do it.
Today on The Big Take Asia, host Rebecca Choong Wilkins talks to Bloomberg senior editor Reed Stevenson about a class he visited where people are relearning the long-lost skill of negotiation, and what a failure to raise prices at these small businesses – which make up 90% of the economy – could mean for Japan’s future.