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Complementarity and Cost Reduction: Evidence from the Auto Supply Industry.” NBER Working Paper No. 6033

By Susan Helper


Abstract: The success of Japanese manufacturing firms such as Honda and Toyota has renewed attention to the importance of cost reduction on existing products as a source of productivity growth. Using survey data and interviews, this paper explores the determinants of average-cost reduction for a sample of 207 automotive suppliers in the United States and Canada between 1988 and 1992. In particular, the paper explores the efficacy of methods for mobilizing latent knowledge from decentralized sources such as workers and customers, or “voice”. Plants using voice practices did better than other plants if they had a highly effective suggestion program for workers, or if they adopted at least two voice practices, such as a) suggestions from workers and long-term, informationrich relations with customers, or b) suggestions from workers and efficiency wages for workers. Despite this evidence that certain practices may be complementary in their performance, there was little complementarity in adoption. (For example, firms with suggestion systems are slightly less likely to have voice with their customers.) This outcome was attributed to incomplete diffusion of the organizational innovation of ‘voice’

Year: 1998
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