Commentary: Japan’s high standards of service face ‘shrinkflation’

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JAPAN’S CHRONIC LABOUR SHORTAGE

Even global brands such as McDonald’s which seek to replicate a particular dining experience across the globe know they have to raise their game in Japan – and have historically done so.

The variable these days is Japan’s chronic labour shortage – a slow-burning crisis of demographics and hesitancy about immigration which, as examples highlight almost daily, is making its mark across the economy. Last week, in a Kyodo survey of 114 of Japan’s largest companies, 49 per cent said they were short of staff. Tokyo Shoko Research, meanwhile, reported that in the first six months of this year, bankruptcies directly caused by staff shortages were 2.5 times higher than the same period in 2022. 

Versions of the crisis are everywhere – some are unsettling. In a country where most of the land mass is hills and valleys, members of the Japan Society of Civil Engineers worry about the huge national shortfall of expertise in bridges and tunnels. 

But for now, at least, large parts of consumer-facing Japan are entering a complex charade that seems to draw inspiration from another bit of corporate gamesmanship. After many years of deflation and loss of pricing power, Japanese food companies became absolute masters in the dark arts of “shrinkflation” – reducing the quantity of product while maintaining familiar sizes of packaging. Japan was hardly alone in this practice, but squeamishness around raising prices meant it became a more entrenched habit than elsewhere. 

Grumpy Japanese websites track in great detail the ways, measurements and timeframe in which shrinkflation has reduced the length of beloved ice lollies, the number of processed cheese slices in a pack or the number of Melty Kiss chocolates in a sachet. A favourite joke centres on Fujiya’s popular Country Ma’am chocolate chip cookies and the forecast that, under its current rates of shrinkflation, each one will be smaller than a  ¥1 coin by 2040.

The shrinkflation deception uses visual consistency in the packaging to anchor expectations while delivering less. It also postpones for as long as possible a fundamental change of relationship with customers.

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Commentary: Outside of politics, Thailand has a good story to tell

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SINGAPORE: When central bankers line up almost daily to assert their commitment to fighting inflation, it makes me think of Thailand. Not the fine resorts and great food. The country’s untrumpeted success is seriously taming prices to the point where officials might want to think about easing up, lest the economy slows too much.

Like the rest of Southeast Asia, Thailand has been blindsided by the modest nature of China’s rebound. Tourism, a key industry, is gradually recovering. The number of Chinese visitors is heading in the right direction, but nothing like the surge that was anticipated when Beijing canceled zero-COVID.

Thailand’s divisive politics aren’t helpful: Two months after an election, the country is without a prime minister.

Don’t let these caveats subtract from a fine story. Most policymakers would prefer to forget that when inflation first started to climb in 2021, they played it down. Having wrestled with how to fire it up in the years before the pandemic, they weren’t going to jump at the initial upticks.

A host of terms were used to describe the benign scenario: Temporary, short-lived and, of course, the now infamous “transitory.” Federal Reserve Chair Jerome Powell stuck by the “T” word too long, before ultimately burying it and embarking on an aggressive tightening.

The Bank of Thailand, by contrast, has embraced transitory – and rightly so. The pace of consumer price increases retreated to 0.2 per cent in June from a year earlier. That’s a dramatic decline from almost 8 per cent in August 2022.

Officials don’t see it staying so anemic for long, but even forecasts of 2.4 per cent next year mean inflation is well and truly reined in. And they did it without smothering the economy by panicking and ratcheting up borrowing costs too rapidly.  

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Commentary: Alibaba’s latest shakeup highlights its conundrum

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Putting Tsai, a long-time confidant of founder Jack Ma, in charge should help steady the ship. With each of the spun-off units operating independently, the holding company will have far less to do than in the past. 

That’s because the parent will largely comprise Taobao, as well as the group’s cash and investments. So it makes sense for Wu, who runs the Taobao unit, to also be CEO of Alibaba Group. 

It’s now up to him to reignite growth at Alibaba’s cash cow, and if not then Tsai will be tasked with finding someone who can.

ALIBABA CEO DANIEL ZHANG’S FATE

This does seem like a demotion for Zhang. It’s hard to view his removal from the chairmanship of a US$240 billion company as anything else. 

But there’s another way to look at it. Zhang is a lion at the company. 

He helped propel Tmall – the online store for branded products – and Taobao, the more general marketplace, through some boom years, including the invention of the 11.11 Singles’ Day shopping event. He’s been a chief financial officer and a chief operating officer, which makes him a well-rounded executive.

Cloud computing has offered great promise to Alibaba and rivals including Tencent and Huawei. But the potential has yet to be realised, with Alibaba Cloud continuing to lose money. 

If Zhang turns it around and produces sustained profits, then he’ll be the hero in charge of what could grow to become worth just as much as the parent is today. If it fails, then his future at the company will be in doubt.

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Commentary: What Western tech firms can learn from LinkedIn’s failure in China

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For instance, it was not possible for users to immediately click on a new connection’s profile; the only way to find them was to remember their name and search for it on the platform.

Shen’s team raised a request to create a list of new contacts that users can navigate – taking a page from the Chinese social tool WeChat – but the US product managers were “too lazy to copy a feature that works for a competitor”. 

On the surface, it seems that arrogance and lack of market understanding are the key reasons for LinkedIn China’s eventual demise. But these are merely symptoms of deeper issues, namely a lack of mental bandwidth at the top and the organisation’s setup.

To succeed in a new market, thousands of decisions need to be made, products need to be continuously iterated, and sometimes complete pivots are necessary. This is especially when you are facing strong homegrown competitors led by committed founders with ready access to the best talent. 

All of these demand leaders’ attention. How much resources to dedicate to the new market, knowing that things rarely go according to the business plan? When products change or additional resources are required, how fast can you get them to the ground? When the business significantly underperforms, would you continue to invest or cut the loss?

HARD FOR TECH GIANTS TO ADJUST TO FOREIGN MARKETS

That was the challenge that US e-commerce juggernaut Amazon faced. Amazon entered China in 2004, around the same time Alibaba launched Taobao.com, but exited in 2019. The market for Amazon in China was small compared to its home market in the US. 

As a company, Amazon was (and still is) logical and strong in execution. In the US, it uses sales predictions to allocate resources and inventories. The natural thing to do is to apply the same logic to China – so if it predicted sales in China were going to shrink, it would reduce inventories and logistical infrastructure to rein in cost.

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Commentary: Anwar Ibrahim’s struggle for economic rejuvenation in Malaysia

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POLICY STANCE ON GOVERNMENT SPENDING NOT SUSTAINABLE

Politics aside, economic headwinds remain Mr Anwar’s most serious challenge. 

Once one of the region’s budding tiger economies, Malaysia has fallen to fifth place among the economies in the Association of Southeast Asian Nations (ASEAN). It has been overtaken by Vietnam that ranks in the top four together with Indonesia, Thailand and Singapore.

The effects of the continuing global slowdown showed up starkly in the country’s export performance, which contracted 17.4 per cent year-on-year in April.

Bank Muamalat’s chief economist Mohd Afzanizam Abdul Rashid forecasts that overall exports this year could decline by 9 per cent, compared with a 25 per cent growth in 2022. “This will leave domestic demand as the main economic driver for overall growth,” he said.

Economists noted that domestic demand, made up by government spending and private consumption, has accounted for more than 70 per cent of GDP since 2019. 

But this growth option is no longer sustainable. Malaysia is now suffering a serious financial hangover for the spending binge, with government debt ballooning to 1.08 trillion ringgit at end-2022, almost doubling in six years.

“The policy stance of government spending is no longer sustainable, and Malaysia needs a new economic narrative,” Sunway University’s Professor Yeah Kim Leng, who sits on a five-member panel advising Mr Anwar on financial matters, told CNA.

“The new path must feature shifting the economy to more value-added production driven by attracting technology intensive industries that will in turn boost wages,” added Prof Yeah.

Leslie Lopez is a senior correspondent at CNA Digital who reports on political and economic affairs in the region.

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Commentary: A gruesome severed fingertip tells a painful story about corporate Japan

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WHERE DOES THE BUCK STOP

In the corporate context, this fear finds expression in various forms: Cash hoarding, risk-aversion, cross-held shares in other listed companies, the tendency to set forecasts low and hope for outperformance and chief executives whose grandest strategic ambition is to survive their time at the top without incident.

The striking thing about this framework of fear is how suddenly vulnerable it all looks, and on multiple fronts. The first of these, in a shift that has not yet been recognised for its truly tectonic nature, is a new edict from the Tokyo Stock Exchange that will in effect force companies to explain why their share-price-to-book-value ratio is consistently low.

The embarrassment factor should, in theory, shake a lot of companies hard. And while the price-to-book metric may not be the best or most consistent gauge of a company’s commitment to better governance and better capital efficiency, it works well as a catch-all identifier of the larger problem.

Japanese chief executives have lived until now without an explicit, sustained pressure (or stock-ownership-related incentive) to raise their share price, or even a clear doctrine that it lies within their powers to do so. Suddenly, the TSE has granted investors permission to hard-boil CEOs on their literacy levels when it comes to cost of capital, and to make inaction the greater fear than a sudden course correction.

Closely linked to that is the need for companies to be more scared than they currently seem to be by the pace of irresistible, and in some cases existential, change. The transformations that will be forced on corporate Japan by artificial intelligence, deteriorating US-China relations and the fact that the country’s most important company, Toyota, appears to have misjudged global demand for electric vehicles are all examples of concerns that should far outweigh the more conventional fear of sudden strategic change. They have yet to do so – at least outwardly – in the C-suites of many companies.

A missing fingertip, however gruesome, may be survivable. The question the incident raises is how bad the injury would have to have been to give up on that day’s deliveries.

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