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From the Olympics Toward Tomorrow

Shinano Mainichi

Concrete cooperatives collapse due to "price dumping"

Local companies concerned about stiff price competition on Olympic projects

Chairman of the Board Tatsurou Takamizawa suggested dissolution at a Nagano Concrete Cooperative Board of Directors meeting held at one hotel in Nagano City on the afternoon of January 22. "In the near future we'll have no basis for our existence. We ought to keep only the fire that remains lit." Upon hearing the opinions of other board members, it was decided to only keep up the group's official registration. A cooperative that had been operating continually for 28 years has now in reality collapsed.

Thirteen concrete producers, mostly within the Nagano City boundaries, had been affiliated with the cooperative. It was responsible for taking orders from construction companies and offering the product at prices agreed upon by its members.

It is legal for small and medium-sized companies to form cooperatives and remove competition by engaging in joint sales activities, as these groups are not banned by Japanese anti-trust law. However, these sales methods were largely abandoned due to the Olympic-piqued demand that saw its highest point in January 1996. For the cooperative it was as if the "store was closed." Each company was out engaged in fierce price competition.

"If we didn't act for ourselves, 'outsiders' (companies outside the cooperative) got all the work," said one board member.

Nagano's concrete industry mainly meets demand for freeway roadwork, construction of the new Hokuriku Shinkansen ("bullet-train"), and Olympic-related projects. As a group their sales volume doubled from 600,000 to 1.2 million cubic meters per year per company from 1990 to 1995.

However, the high demand did not allow for old exclusionary practices. In 1990 there was only one company in the city that did not belong to the cooperative. That increased to three in 1993. Those three companies complied with JIS standards and obtained the appropriate producer licenses. In order to reduce costs some producers procured gravel from company-owned mountain and forest land, bringing prices down from 13,000 yen to approximately 11,500 per cubic meter.

A concrete mixing truck carries its product to the Nagano City Olympic Hockey "B" venue "Aqua Wing" construction site. High Olympic demand has intensified price competition for ready-mixed concrete.

Outside companies eventually received Olympic construction orders. One major general contractor did not stick to the cooperative pricing. "Even a one yen reduction in the price of the product makes quite a difference and therefore major contractors' asking prices are fairly low. During the latter half of the Olympic construction period we captured about 25% of all orders."

Joint sales activities used by cooperative members are now in complete disarray. Contract negotiators urge that "prices are expected to drop" and it is said that kickbacks to companies accepting bids at cooperative prices are now more frequent.

The current rate for concrete in Nagano City has dropped to 10,000 yen per cubic meter, a price well below that in the Kanto Region (Tokyo). "It's as if concrete is being sold along with bundles of cash attached," say some non-affiliated companies. If the stiff price competition continues plant closures and bankruptcies are likely to occur. But companies continue to run the race while holding onto these worries.

Two cooperatives in the Joushou and Saku Regions came together to form the "Eastern Shinshuu Concrete Producers Cooperative" in June 1996. They hope to build a "breakwater" to protect them from the same kind of price competition.

Concrete produced in Nagano City has begun to find its way into the Jyoushou District. Producers in Ueda City say, "In the two months since the freeway connecting the eastern and northern parts of the Prefecture was completed, 20,000 cubic meters of concrete has flowed in from Nagano."

Since ready-mixed concrete must be delivered within one and a half hours of production, inexpensive product cannot infiltrate all markets at once. However, if a price war was to start in the Joushou region it is likely that it would also expand to Saku.

The new cooperative was formed to make up losses on local projects that were taken by companies from Nagano. They intend to staunchly defend a cooperative price of 13,000 yen per cubic meter. Chairman Seikichi Takahashi says with a sense of crisis, "There is some internal discord that suggests we ought to lower the cooperative price. But if we do that... then it's all over."

To accept projects outside the domain of your own cooperative is considered taboo. One Nagano company, who received objections from local producers regarding operations in the Joushou region, are of the following notion. "To go elsewhere (outside your local region) for work is not good. But around here everyone is killing each other. On top of that, construction firms continually knock down the prices they are willing to pay. Everything has literally run amuck. When it gets like this there's nothing nice that can be said."

Preliminary audits of the Nagano Olympics suggest that the total economic payoff from related projects could be close to 2.3 trillion yen ($20 billion US). On one side these are very profitable undertakings. On the other side fierce competition brought about by the advances of large enterprises into regional markets creates large holes in the structure and vitality of local economies. Some industries lose sight of what is to come after the Olympics are finished, being tossed about by the undulations of intense change. What can be seen beyond this heavy Olympic demand? The following articles will pursue such issues.

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Copyright 1999 The Shinano Mainichi Shimbun