photo credit: OiMax Recently, a real VP of Finance of a big, international company in Kansai told me that things are pretty serious right now for Japan’s economy, especially in the Kansai area. His company, Company X we will call it, was consistently bringing in a profit of 16 million dollars a month in previous years. The company’s revenue each month has been 36 million and taking away fixed costs of 20 million, they have been making a profit of 16 million, in other words, an 80% profit each month. Companies usually aim for at least a 30% profit so if a company is getting an 80% profit, it is very successful. However, from November, the profit of Company X dropped from 16 million a month to 10 million. December came and it dropped to 5 million. January came and it made no profit but just enough revenue to barely break even. February for Company X will probably result in a negative balance, meaning that the company is in “the red” and its operating costs are higher than its revenue. This company is doing what many companies in Japan and all over the world are doing, that is cutting costs and clipping coupons in order to save money wherever they can.
The first cost to be cut from companies nowadays is the entertainment budget. That’s right, the days of eating tenpanyaki and drinking expensive sake and the nights of visiting expensive hostess clubs in Kitashinchi are over. Another unfortunate thing that usually has to go is the company English lessons. Some companies spend a lot of money sending their employees to eikaiwas for private lessons and when the economy is down, learning English is usually one of the first things to go.
The next cost cutting strategy is to lay off the temporary and part-time workers and cut overtime. In Japan, the company has to prove its financial situation to the Ministry of Labor in order to lay off employees. However, many companies don’t like to do this because then it is public news that the company is having financial troubles. Therefore, trust in the company’s products goes down and they are likely to lose clients. So usually, unless it’s a dire situation, only the part-timers are cut. This is one way for company’s to reduce their variable costs. Variable costs include employees’ salaries, number of workers, materials and delivery costs, etc.
In a financial crunch, it’s best for companies to reduce their variable costs and focus more on fixed costs. Fixed costs are those that remain the same regardless of the company’s sales. Some examples are rent on an office building, insurance, etc. The 3rd thing that is cut from the budget is business trips. Hello Skype, web cams, email, and the good ole’ handheld telephone. Telephone and video conference meetings are more popular than ever with the financial crunch and the tightening of belts recently. As with Company X, they saved 2 million dollars a month just by cutting the costs listed above. So it seems that we could probably all take a page out of their book to get control over our money these days but it seems like no matter what we do, it’s going to affect someone.