Growing Risk of “Cost Increase” ~REPORTERS ROUND TABLE~


Reporter A:
Soon it will be two months after the expiration of the Finance Facilitation Act,  but surprisingly things have been calm on the bankruptcy front.

Reporter B:
There have been a few bankruptcies of large companies. However, it would be premature to attribute this to the success of Abenomics (the current Prime Minister of Japan, Abe’s economic policy).

Reporter C:
The total number of corporate bankruptcy has been on the decline, but that trend hasn’t been seen by all industries.One commonality among the industries in which bankruptcies are on the rise is the factor of increased costs in combination with slumping sales. For example, transportation companies such as trucking services are subject to that trend (which is on the rise). As the race for orders intensifies, slowly but steadily the rising gasoline and diesel prices put pressure on the bottom line. The transportation industry saw 420 bankruptcies in 2012, up a whopping 7.1% compared to the 392 bankruptcies that the industry witnessed in the previous year.

Reporter D:
In 2012, 208 food and beverage manufacturers went bankrupt, recording a 30% increase over the year before. The demand for food–which is one of the basic necessities of life–has been steady, but a prolonged slump in consumption is pushing the unit prices lower. Particularly, more manufacturers of bread, confectionery, tofu and fried tofu products–which rely on flour and soybeans as their materials–have closed shop.

Reporter E:
Exchange-rate trends also require attention. The sudden weakening of the yen has certainly dealt a fatal blow to importers. One rubber importer said, “All we have been doing over the past several months is a price negotiation with our customers. We can’t do any other work.”

Reporter B:
Higher electricity tariffs affect many businesses. According to a survey conducted by Teikoku Databank (based on effective responses from 10,244 companies), approximately 60% of the companies that responded said higher electricity tariffs would adversely affect their business performances. Among others, the percentage of companies anticipating a negative impact due to higher electricity prices exceeded 70% in the agricultural, forestry and fishery sector and the manufacturing sector, both of which make extensive use of electricity.

Reporter D:
It’s worth noting that 46.1% of companies refuse to pass on the increased costs to customers by raising the selling prices of their products. If you recall the situation of food and beverage manufacturers mentioned earlier, it’s difficult for them to pass on higher manufacturing costs to customers given the persistent slump in consumption, deflation and the lower-price orientation of customers. More than a few companies are in a fix: There are no margins in orders, but they must still work hard to get orders in order to pay their employees and pay for their equipment.

Reporter C:
Following the decision by lawmakers to increase the consumption tax rate, the lower house passed the “Special Measures Bill on Countermeasures for Fairly Passing on Consumption Tax to Consumers,” prohibits clearance sales where the merchant gives a discount corresponding to the tax increase. We hope these measures, designed to prevent small and medium-sized manufacturers and suppliers from assuming all the losses, will be implemented properly.

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