Endaka: How A Medium-Sized Company Held On

This article from World Business helps us understand an important period in history—the decade when the U.S. dollar kept falling.  The constant rise in the Japanese yen caused extreme problems for Japanese companies. This proves that the principles are same regardless of which currency happens to be up or down at a particular moment in time.

The article says “the wholesale prices exporters could command had essentially been cut by two thirds.”  What it means is that the yen had appreciated against US dollar from $1 = 240 yen in 1985 to $1 = 80 yen in early 1995.  In order to remain competitive in the market, Japanese exporters had to cut down their profits by two thirds.

The company profiled here did worse and worse as the yen got stronger.  As the yen got stronger, the company’s exports became less profitable and their products became less competitive compared to the other low-wage Asian economies.  In order to improve things, Endaka reduced employee bonuses and relied on quality manufacturing and service.  They invested in R&D to build low-cost semi-automatic machines to compete with their low-waged Asian rivals.  The company also setup a new plant in Bangkok to gain a cost advantage. 

Reducing employee bonuses and building low-cost machines reduces the operating costs, thereby keeping the prices same as before, to be competitive in the market.  This allows them to export at the same price without passing through the exchange rate fluctuation.  Starting a plant in Bangkok whose currency was on the decline, helped the company to compete against other low-waged countries, there by reducing the production costs.

The article was written at the exact time that the yen reversed and started its decline.  When the yen starts to decline, the firm’s exports will become cheaper and more competitve in the world markets.  The firm should now export more.  The firm should also reduce the amount of imports which they had relied on during the period when yen was appreciating.  They should also return to their previous bonus scale to revive employee satisfaction and morale.