There was a sector of liquor stores that had adopted the strategy of franchising or converting into convenience stores in order to survive, but small-scale retail stops that couldn’t afford such options were no longer able to keep business going. The wholesalers, in turn, were also suffering from an undeniable drop in sales due to the undercutting on unit price and the slump in consumption. For liquor stores and wholesalers both, even if they were to streamline their businesses to counter the narrowing profit margin, the current keiretsu system was nothing but an impediment to cost-trimming strategies, such as bulk purchasing and refining the product line with strong sellers, and it only exacerbated the management inefficiency. On the other hand, within the wholesale industry where family-run businesses were common, measures to strengthen management infrastructure and improve their competitive edge, such as mergers among small to mid-size wholesalers or absorption by larger wholesalers, were not the kind of thing that could happen overnight.
Separately, instead of focusing on domestic beers, with their high liquor tax that never turned a profit no matter how many units they sold, convenience stores and large supermarkets were beginning to engage in direct sales by partnering with foreign beer manufacturers to develop their own in-house brands or forming exclusive distributor agreements. As of May 1st, a 350-milliliter can of domestic beer would cost 225 yen. Meanwhile, an imported brand sold directly by a certain convenience store cost 180 yen. Such direct transactions between major mass retailers and foreign manufacturers had resulted in beer price-busting and diversification of sales channels. Moreover, foreign products that benefited overwhelmingly from tax rates and raw material costs had been streaming into the country. What these situations suggested—as far as domestic beer manufacturers were concerned—was a future for the beer industry that promised to chip away at Japan’s hundred-year-old sales and distribution system and ensured a decline in sales for Hinode, the company that had dominated such a system.
Every manufacturer nowadays was being forced into reforming their business structurally, but complex problems—such as reassessing the distributor network, including the rebate system; restructuring wholesalers; restructuring and cutbacks with small-scale liquor stores; reevaluating the immense publicity and advertising costs shouldered by the manufacturers, as well as the labor costs of maintaining their regional sales network; and restructuring the land transportation industry in order to streamline distribution channels, for both manufacturers and for distribution and sales at every level—these could all only be realized five or even ten years from now.
Nevertheless, the fact was that, in just a week, when the shelves of liquor shops and vending machines were lined with 225-yen cans of beer, at the same time discount stores, convenience stores, and major supermarkets would be stocked with imported beers and their own label beers for less than two hundred yen. The price difference for a case of twenty-four beers could amount to nearly a thousand yen. For Hinode this meant that, a week from now, the brunt of this impact would be felt by the six hundred dealerships and the 130,000 general liquor stores around the nation. Over the last half year, Shiroyama himself had taken the lead, wearing out his shoes visiting clients—to the point that, even now just standing on the grass, his feet hurt a little.
“The long-range forecast predicted that this summer will be extremely hot,” the president of Sato Transport called out to the two men from the distributors.
“Yes. Things being what they are, all we can do is pray for good weather,” the president of Iida Shokai replied.
“I don’t know what we’ll do if there’s no hot weather to drive up business,” the president of Tomioka followed up.
Since the kickoff to the spring sales season had not gone so well for any of them, Shiroyama agreed that they must count on the weather. Their competitors doled out new products again this spring, but Hinode had not. While sales of the lager and Supreme were still steady, they had decided to prioritize a large-scale reform of their domestic product line and the reorganization of delivery terminals in order to simplify their distribution system, but current sales figures were still forefront in his mind.
As they emerged from the grove of cedar trees, team number three was waiting to tee off at the par-four eighth-hole. Shiroyama saw that the man gripping the long-iron was Sei’ichi Shirai, and he appeared to be having trouble addressing the ball. The eighth hole was a dogleg with a narrow fairway shaped like the hollow curve of a suribachi bowl, which made the tee shot crucial, but Shiroyama could see right away that Shirai was restless and taking far more time than usual.
Shirai’s golf game was similar to Shiroyama’s but the way he played could not have been more different. Shirai had always been the type to first envision a conquest that was a level above his own skill, and then seek out various methods for achieving it. While Shiroyama paid more attention to his overall score, Shirai would go after a difficult course and be happy as long as he parred just one hole, even if he triple-bogeyed the other seventeen. Shirai’s approach to golf seemed somehow to correlate with the way he worked and his management philosophy—though there was quite a gap between his ideal and reality—and at times his pursuit of a strange shot made it hard to tell if he were calm or just moody, so it was interesting to watch him.
Shirai finally pulled into his backswing and followed through relatively cleanly, sending the ball flying. Shiroyama couldn’t see where it landed, but since light applause rose immediately from the crowd, he presumed the ball was in a good position.
Shirai maintained a breezy countenance in front of all their distributors, but the truth was that he was incredibly busy, approaching the conclusion of four years of ongoing negotiations for Hinode’s joint venture with Limelight—an event that would determine the course of their entire industry. Playing golf today must have really pushed him to the limit physically, but in order to divert the attention of the newspaper reporters and industry insiders, who were paying close attention to how the terms of the negotiations would pan out, and to evade the doubts and suspicions of rival companies, it was absolutely crucial for him to attend the competition as usual, looking as if nothing was amiss.
Waiting for his turn to tee off, Shiroyama made small talk with those standing around him, as once again he pondered questions about the joint venture he would have to make a final decision upon in a few days’ time.
In the fall of 1990, when Limelight revealed their intention to dissolve Hinode’s exclusive distribution agreement and to establish a new joint corporation with them, Hinode had been genuinely dismayed to realize that Limelight’s objective was a full-scale entry into the Japanese market. The terms of the joint venture that Limelight presented would have limited Hinode’s investment to 10 percent, with Limelight controlling all agency and management rights, and with regard to sales routes—the most crucial issue—Limelight would be free to select them as they saw fit, without being restricted to Hinode’s network of keiretsu distributors. Moreover, the period of the joint venture was for ten years. In sum, the joint corporation that Limelight proposed would, rather than fitting into Hinode’s network of affiliated companies, operate as a completely independent competitor that would dominate a corner of the Japanese market, and it was merely a formality of borrowing the name of a domestic manufacturer to get around the restriction on obtaining a license to sell alcoholic beverages.
Shiroyama and all the other executives were appalled at this, and during the first year of negotiations, the option to dissolve their existing relationship with Limelight was also on the table. Now that the past ten years of Hinode’s business expansion efforts were finally bearing fruit, Limelight’s products had reached domestic sales of seven million cases per year with a market share of 1.3 percent, and while dropping those figures would be, for the time being, a considerable loss for Hinode, the long-term damage incurred, were they to accept the terms Limelight insisted upon to establish a joint corporation, would be incomparable. Opinion
was divided among Hinode’s board members—either force Limelight to change the terms of the joint venture, or lose the 1.3-percent share by dissolving their relationship.
Nonetheless, last fall, after three years of negotiations, the tenacious bargaining led by board member Shirai had yielded results—Hinode’s investment ratio was now forty-nine percent, and while management rights had been ceded to Limelight, the condition was that their sales routes would be restricted to Hinode’s network of keiretsu distributors—and they had hammered out an agreement in mid-October. Afterward, both parties began drafting a prospectus to submit to the Japan Fair Trade Commission as soon as possible, but at the last minute, the JFTC had suddenly intervened. Limelight concluded that the winds were in their favor, what with the progress of the Japan-US Structural Impediments Initiative, the advent of a coalition government that had pledged deregulation and to open up markets at home and abroad, and the subsequent stricter enforcement of the Antitrust Act. Thus, they had cannily scrapped their agreement with Hinode and run to the JFTC.
The JFTC deemed the domination of Japan’s domestic beer industry by four major companies an oligopoly and saw the extensive licensing system of production, distribution, and sales in the interest of liquor-tax collection as an impediment to full and open competition and a breach of the Antitrust Act, and had always been looking for the right opportunity to strike. Now, Limelight tried to put the screws to the JFTC to form a joint venture with Hinode under their original terms, but upon receiving this proposal, the JFTC’s leadership proved to be more obstinate than ever before. According to the JFTC, the dissolution of the domestic oligopoly and the opening of proper free-market competition were not the only prospects if Hinode were to establish a new joint corporation in accordance with Limelight’s plan. The JFTC even made the veiled threat that if a domestic manufacturer did not agree to such a joint venture, then beer, along with automotive parts, flat glass, and telecommunications, could all potentially become the target of Japan-US trade negotiations.
The JFTC took such a strong stance because, to put it simply, if one of Japan’s manufacturers did not take on Limelight’s aggressive demands, they would find themselves in a situation where they were unable to respond to requests from home or abroad and that Hinode was the only manufacturer with enough basic and fundamental strength to do so. Meanwhile, the National Tax Agency, who ordinarily should have protected the domestic manufacturer in order to secure the liquor tax, proved itself to be consistently weak-kneed, in part due to the chaotic political situation, and failed to demonstrate any leadership. However, considering the current trends, this problem would have occurred sooner or later, so ultimately one could say that Limelight had shrewdly taken the pulse of the times and come out victorious, while Hinode had gone on the defensive and lost.
In any case, fearing the remote chance that Limelight would join forces with a convenience store that sold seventy billion yen worth of beer annually, Hinode had, since January this year, returned to the negotiating table and, hoping to extract even a small concession from Limelight, Shirai had been hard at work right up to the day before yesterday. Even if they were to accept their conditions as they were, it might not have a significant impact on the basis of Hinode’s management itself, but in the future it would wreak incalculable havoc on the entire beer industry, Hinode included. Once they set a precedent, other huge foreign manufacturers might launch similar successive offensives. If that were to happen, as of now the domestic industry had no countermeasures.
Over the last three months, many of those on the board of directors could not help but express resistance to an industry giant like Hinode willingly choosing a path that would ultimately lead to their network of distributors being devoured by a foreign manufacturer. And yet, no one would come out and say that there was any way they could refuse the joint venture. Shirai himself, from the start, had been of the opinion that if this road was indeed inevitable, it was in their best interest to prepare for it now, and Shiroyama too, after thinking it over countless times himself, was verging on the decision to accept their demands.
As for Hinode, they would be able to add Limelight’s share to their overall sales for the duration of their ten-year joint venture, but if by that time, when Limelight had been set up independently and the era of full-scale free competition would begin, they still did not have a structure in place at least to cover their loss in shares of the beer market, there would be no future for Hinode anyway. What was more, if Limelight’s raid into the market were to bestir the wholesalers and liquor stores themselves to finally accelerate the streamlining process that had languished for so long, then in the long run that could even be seen as a benefit.
The rest depended on how they would accede to Limelight’s demands. If they were to swallow them whole, they would lose face in front of their competitors and every one of their distributors. Late last night, Shiroyama had instructed Shirai to present one final condition to Limelight. Namely that, during the first three years of the joint venture, Limelight must maintain the same suggested retail price as domestic manufacturers. For now, they would push for this one concession, and wait to see what would be their move. On Monday—tomorrow—Shirai was expected to return to the negotiating table with Limelight.
Presumably, this would bring the four-year-long joint-venture issue with Limelight to a conclusion. On Wednesday the 27th, they would summon the board of directors to present their final decision, and on the 28th they would convey the terms of their resolution to the JFTC and Limelight, and once the various procedures had been squared away, they would announce the joint venture by mid-May. However, as far as their business was concerned, before that could happen, they needed to explain the situation and build a consensus first among their designated shareholders, as well as their major distributors and competitors. The joint venture with a behemoth like Limelight—a corporation that held a 10-percent share in the global beer market and whose scale of production was one-and-a-half times that of all four major Japanese companies put together—no matter what form it took, it was sure to send shock waves in all directions.
The consensus-building was scheduled for the week beginning Monday, May 9th, after the Golden Week holiday ended. As Shiroyama made these calculations in his head, the queue in front of him to tee off grew shorter by the minute, while a new line had formed behind him.
A bird’s call above his head reached his ears, and when he looked up the slightly overcast sky showed faint streaks of sunlight. Shiroyama breathed in the air, thick with the scent of new buds on the trees and, just as he had begun to contemplate the aim of his impending shot, the president of Sato Transport said casually, “About this morning’s paper . . .”
Shiroyama, detecting the gloom in his voice, nodded lightly and replied, “I know.”
Within Hinode, this morning’s article on the criminal investigation of the Ogura Group was generally received without much surprise, but Shiroyama imagined that it must have been a source of recurring concern for their affiliated transportation companies. The management situation of every one of those companies was more or less the same as Ogura, and during the bubble years many of them, in order to offset the low profitability of their land transportation division, had dabbled in speculative assets and invested in real estate for diversification. Sato Transport was one such company. Since the year before last, Hinode had been sending their executives to Sato Transport and, as part of Hinode’s efforts to restructure their distribution division, they had leased a section of the truck terminals and service routes that Sato Transport held in Saitama and Chiba, with an eye toward strengthening the company’s management base. With Ogura, three years ago, before their scandal became public, Hinode had shelved plans to join their management, and because of this people said they had played it well.
In reality, although the plan to join their management had been shelved, Hinode’s business partnership with Ogura had progressed steadily, and plans to improv
e their distribution network were still on track. The criminal investigation of Ogura alone would not destroy the company, and there were no other factors that would cast doubt upon Ogura, whose management team had already been fully overhauled and renewed. In that sense, Hinode had reaped well indeed.
“I do feel bad for Ogura. They had to send out apology letters to every single client, and even their drivers had to go around paying courtesy visits,” the president of Sato Transport mumbled. Shiroyama responded simply, “You’re right,” and avoided any further conversation.
A stir arose from the back of the line, which then turned into sighs and murmurs. Shiroyama turned around to see everyone peering at the seventh-hole green across from the grove of cedar trees. Cries of “So close!” and “He almost made it!” rang out.
“Whose shot was that?” Shiroyama called out toward the back.
“Kurata-san. Ten centimeters away from a hole-in-one,” someone shouted back.
“Ah, Kurata-san . . . No wonder,” another voice mumbled. Indeed, it was not surprising for Kurata to almost make a hole-in-one on a par-three hole. Ever since he was young Kurata had been an avid golfer, and in his days as a salesman, whenever he had any spare time he would head to the links to practice alone. Of course, now that he was an executive vice president he no longer had the time and his score had suffered, but back when he was in his forties he had always been a single-digit player—he was even a zero handicap for a while. Perhaps natural ability and focus were not things that deteriorated with age, and since on his good days he could still easily drive 270 or 280 and certainly sink a three-or four-meter putt, at every competition someone would complain that playing without a handicap was not enough for Kurata.
Lady Joker, Volume 1 Page 20
