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Virtually all of these indirect sales are made through intermediary companies

 In Japan, as in Europe and the United States, there is a significant difference between list prices and transactions prices of steel produc...




 In Japan, as in Europe and the United States, there is a significant difference between list prices and transactions prices of steel products. However, unlike the situation in the other countries, list prices until recently were arrived at jointly by 43 steel producers under the guidance of the Japanese Ministry of ~nternational Trade and Industry (MITI). These companies met m¿nthlY with their trading companies and, - 207- except for slight variations, announced uniform prices (14, pp. 5, 6) and (9, pp. 36-39). This system, known as the "koka i hanba i se ido" or "kohan" system, for shdrt, was first establ ished in June 1958 in an effort to reduce price cutting ,~ ' ~; during recessions (13, p. 103) and (9, pp. 36, 371. These prices are termed "joint open sales prices" (JOSP). Prices for large users such as the automobile industry are given .~


 . separately. In addition, the industry quotes "joint open sales standard prices" (JOSSP). The JOSSP are intended to represent the pr ices steelmakers consider necessary for longrun industry, growth. However, these JOSP and JOSSP have shown extreme inflexibility and are above transactions prices except during periods of strong demand. It should be understood that the Japanese distribution system differs markedly from that of the U.S. In the U.S., approximately 80 percent of the steel is sold directly by the steel company to the end user. 61/ Japanese steel companies sell approximately 90 percent of their steel products indirectly through middlemen. 62/ 61/ According to the American Iron and Steel Institute's Annual statistical Report in 1975, 80.5 percent of the steel was sold by steel mills to end users and 19.5 percent was sold to steel service centers and distributors. 62/ See the estimate of Kawahito (13, p. 981, or Japan Iron and Steel Federation, Tekko Tokei Yoran, 1976, pp. 107-109 (in Japanese), for the raw data from which this ratio is computed. -


208- Virtually all of these indirect sales are made through intermediary companies known as trading companies. Trading companies market almost all Japanese steel exports and the bulk of domestic sales. The trading companies actually take possession and reship to the end user about 20 to 25 percent of the steel which they purchase. 63/ In addition, there are small steel service centers for local demand who usually purchase their steel from the trading companies. The t~6.b. prices at which the steel service centers purchase their steel from the trading companies are called "market prices." It is estimated that abou t 5 percent of total transactions occur at these "market prices," wi th such transact ions r is ing as a percentage of the market during contractions. Sales not made through trading companies are generally those of the Big Five steel producers to a large buyer of steel. e.g., sales to a Japanese automobile manufacturer 1 ike N issan. The major functions of the trading company, as intermediary between steel producer and domestic end user, are threefold: finance, delivery, and product finishing. 64/ Generally speaking, trading companies are involved most frequently in transact ions between steel producer and end user 63/ Kawahito (13, p. 99). and Japan Iron and Steel Federation, Tekko Tokei Yoran, 1976. 64/ In addition to th~ information from public sources cited in this section, cons~derable information has been obtained from our interviews o~ steel industry and government steel specialists in Japan. -209- when the consuming firm has a high debt-equity ratio. These consuming firms find the credit extended by the trading companies attractive. ~/ Most contracts between steel producers and trading companies involve the use of the so-called "uchikosen" system, by which the price of the steel is first determined through direct negotiation, and then the commission of the trading company follows as a predetermined proportion of the sales price. Trading companies claim that competition among them prevents the commission from exceeding competitive rates ~/; the commission is currently about three percent. The nature of contracts between trading companies and steel consuming companies change substantially wi thcycl ical fl uctuat ions in the economy. Dur ing recess ions, par ticular ly in times of tight credit, trading companies frequently extend the f inane ing per iod under which end user s may pay for the 65/ For example, Japanese Fair Trade Commission statistics reveal that about 100 percent of Mitsubishi Heavy Industries' steel purchases are handled by trading companies, compared to about 50 percent of Nissan's transactions. Nissan has a relatively high proportion of internal finance. As an exception to the pattern, Matsushita Electr ic has 100 percent of its steel transact ions handled by trad ing compan ies, despite its relatively low debt-equity ratio. 


Matsushita uses trading companies, not because of the financing they provide, but because of the services they render in cutting producer steel to sizes meeting Matsushita's distinctive requirements. 66/ For a good analysis of this subject, which concludes that tne commission fees are not excessive, see Krause and Sekiguchi (15, pp. 394-397). -210- steel. Trading companies usually pay steel producers cash for products received and sell them on credit to end users. 67/ Thus, Japanese steel producers are selling steel either to large end users or to trading companies (who are even larger buyers): one would surmise, then, that the kohan system of prices does not generally characterize the transactions prices at which the Japanese steel producers sell their products. In fact, it is known that the prices at whi~h~teelmakers sold their steel to the trading companies were arrived at privately' outside the large monthly meetings (14, p. 6).

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