Allow Small, Midsize Firms to Reflect Cost Increases So That They Can Raise Wages

Editorial

12:30 JST, March 5, 2023

It is unacceptable for large companies to unilaterally impose the burden of cost increases on small and midsize companies. They should allow small and midsize companies to appropriately factor these increases into their transaction prices with them, so that small and midsize companies can secure the resources to raise their employees’ salaries.

The Economy, Trade and Industry Ministry has compiled the results of a survey on the transaction status of 148 large companies that have business with small and midsize companies. For the first time, the ministry released the names of companies that are negative toward price negotiations and the practice of allowing small and midsize companies to reflect cost increases in transaction prices.

When scores were compiled based on the responses of about 15,000 small and midsize companies, large machinery manufacturing companies and other such businesses received the lowest ratings.

Last December, the Japan Fair Trade Commission also released the names of 13 large companies and organizations, including logistics, auto parts and food wholesalers, on the grounds that they had failed to discuss with their contractors how to reflect higher costs in transaction prices.

The companies that were cited on those occasions must take this situation seriously, ascertain the reality of their transactions and make efforts to improve.

Despite the continued rise in raw material and fuel costs, according to a February survey by the Japan Chamber of Commerce and Industry (JCCI), about 90% of small and midsize companies could not fully pass on the cost of raw materials and fuel to transaction prices.

The industry ministry said it will provide guidance and advice to about 30 companies that did not receive a favorable evaluation in the survey. The commission will also conduct follow-up investigations to confirm the status of passing on higher costs to the 13 companies and organizations whose names were disclosed.

However, companies named by the ministry and commission are said to be only the tip of the iceberg. The ministry and the commission need to work together to strengthen their monitoring and remedy serious cases in order to ensure that higher costs are smoothly passed on throughout the business world.

It is important for small and midsize companies to be able to pass on higher costs because wage increases at those companies, which account for 70% of employment in the nation, are key to the revival of the Japanese economy.

This view has also been spreading among large companies. The Japan Business Federation (Keidanren) clearly stated in its policy for spring labor-management negotiations this year that “improvement of transaction conditions and the appropriate reflection of higher prices are essential” for small and midsize companies to raise their wages.

Toyota Motor Corp. plans to raise the purchase prices it pays to parts suppliers. Honda Motor Co. will also stop its annual request for lower purchase prices, making it easier for small and midsize contractors to pass on higher costs. Moves like these need to be expanded among other companies.

According to an interim tally of a wage hike survey compiled by the JCCI, 58% of about 500 small and midsize companies, mostly in Tokyo, plan to raise wages in April or later, and 30% of these companies plan to raise wages by 4% or more.

An increasing number of small and midsize companies believe wage increases are important to protect the livelihood of their employees in the middle of increasing prices. It is important for large corporations to fulfill their social responsibility in order to support such companies.

(From The Yomiuri Shimbun, March 5, 2023)