Raising Profits without Raising Sales - What's the Bottom Line?

posted by Richard Katz on January 22, 2016

Found in Japan, categorized in Manufacturing

Tags: TOE Richard Katz productivity Japanese economy

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A real increase in productivity would also mean in increase in sales per worker. And yet, among big, firms we see flatness in sales per worker since around 2000 and today the level of sales per worker remains far below the peak achieved in 2007 just befor


A few key points from this report:

- Japan’s firms, particularly its 5,000 largest firms, have mastered the art of producing growth in profits without growth in sales
- Among all 1 million corporations in the Ministry of Finance (MOF) database in the four quarters through July-Sept. 2015, operating profits were up 9% over year-earlier levels even though sales were up only 0.7%
- Firms have achieved this by cutting costs, particularly labor costs
What firms call “structural reform” is not finding ways to become more efficient but mostly cost-cutting
That boosts corporate profits, but does not lead to better growth for the economy as a whole; one person’s costs is another person’s revenue
The new situation makes firms less financial vulnerable to downturns
A second implication is that firms have less need to invest in capacity-expanding plant and equipment
Profit margins (the profits:sales ratio) at the biggest 5,000 firms are at their highest level since the end of the high growth era in 1973 

About Richard Katz

Richard Katz is Senior Fellow at the Carnegie Council for Ethics In International Affairs, the New York correspondent for Weekly Toyo Keizai, a leading Japanese business magazine, and formerly the editor of The Oriental Economist Report, a monthly newsletter on Japan.

Mr. Katz has taught about Japan’s economy as an Adjunct Associate Professor at the New York University Stern School of Business, and as a Visiting Lecturer in Economics at the State University of New York (SUNY) at Stony Brook.

Mr. Katz is the author of two books on Japan's economic travails and has just finished a third book on reviving entrepreeurship in Japan.

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