Japanese suppliers face price cut requests

Many small suppliers in Japan have received requests for price cuts from their clients despite rises in raw materials and other prices, according to a survey by a major labor group.

The survey of 477 companies by the Japanese Association of Metal, Machinery, and Manufacturing Workers, or JAM, highlights the severe situation surrounding small and midsize suppliers.

If such companies remain unable to pass the higher costs on to their clients, they would not be able to raise salaries for their workers. Employees of small and midsize companies account for about 70 pct of Japan's labor force.

According to the survey, conducted for about two months from late November 2022, 36 pct of respondents said their clients requested them to lower prices.

Of those asked to lower prices, 63 pct said they partially met the requests, while 15 pct acted on the requests almost entirely. Only 22 pct said they declined.

Sixty-one pct of those asked to cut prices received the requests while they were under existing contracts with the clients.

The survey also showed that many suppliers are absorbing higher costs by trimming personnel expenses because clients do not see the need for their suppliers to raise prices to reflect rises in labor costs.

An automotive parts maker receives a request for a price cut from its client every half year, losing 1 pct of its sales each time, an employee of the supplier told a JAM meeting at the office building for the lawmakers of the House of Councillors, the upper chamber of parliament, on February 9.

JAM leader Katahiro Yasukochi said he wants big companies to accept price hikes by suppliers, calling for legislation to punish companies that unduly reject price increase requests.