Japanese Supplier Relations: A Comparative Perspective

This paper describes major characteristics of Japanese supplier relations in a comparative perspective. The supplier relations in Japan, particularly automobile industry, are examined in comparison with those in the United States. The primary purpose of the study is to characterize significant features of Japanese supplier relations and to provide economic rationale for those relationships. In addition, comparing supplier relations in Japan and the U.S., convergence in the nature of those are discussed. Significant features of Japanese supplier relations are characterized: long-term relationships and commitments; forced competition among few suppliers; transaction-specific investments in plant, equipment, and human capital; significant involvement of suppliers in product development with sharing of information. Supplier relations in the U.S. are changing and moving close to the Japanese counterpart. There has been a limited, yet noticeable, convergence in the nature of U.S. and Japanese supplier relations.Long-term relationships, Procurement, Supplier relations, Transaction-specific investments

Business groups, foreign direct investment, and capital goods trade: The import behavior of Japanese affiliates.

We examine the impact of buyer-supplier relationships within business group on capital goods trade in the context of foreign direct investment by buyer firms and capital goods producers. A simple model in which cost-reducing relationship specific investments are underlying business group ties suggests that 1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing Japanese exports 2) if the establishment of overseas affiliates by business groups firms attracts FDI by their capital goods suppliers, the ‘trade creating’ impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by Japanese multinational firms in 1996 provides broad support for these predictions and demonstrates a sizeable impact of buyer-supplier ties in business groups on trade. Affiliates of member firms of horizontal and vertical business groups with supplier ties exhibit a greater propensity to import from Japan, but this impact is mitigated or transformed into a smaller import propensity if the groups’ capital goods producers have substantial manufacturing investments abroad.multinational firms; imports; capital goods; FDI; business groups;

Supplier Relations and the Market Context: A Theory of Handshakes

This paper involves an economic theory of the degree of formality in industrial procurement. The argument is based on a tension between two procurement goals: imposing cost discipline on the supplier, and creating the conditions for cooperative innovation. In this model, a contract can solve the cost discipline problem, but only by discouraging cooperation; a less formal arrangement provides cooperation but poor discipline. The attractiveness of contracts is smaller, the less vertically integrated the industry, because a thick market for inputs provides its own discipline incentives even without a contract. Thus, in highly integrated industries, contracts are used, while in less integrated industries business is done on handshakes. This theory of the role of market context roughly fits some stylized facts and international comparisons, and may be a useful complement to some sociological approaches

Dependence and trust between suppliers and industrial customers

Suppliers have experienced unexpected consequences for their businesses due to changing situations for their important customers. Such events may also occur at short notice, at least when it comes to necessary and radical decisions. Often suppliers are not aware of the full extent of these events until it is too late for them to take countermeasures, i.e. develop appropriate strategies. With increasing turbulence in the marketplace, it is clear that firms need to be aware of relationship-oriented marketing strategies. To cope with change the supplier and its customer will need strategies based on jointly understood action. Action, both strategic and operational, is based on each party’s meanings concerning why they do business with one another (enactment). Dependence and trust between the parties are issues in their construction of meaning and will therefore underlie their enactment. The purpose of this paper is to investigate dependence and trust between suppliers and industrial customers, implications for action of dependence and trust, and, finally, draw conclusions about dependence and trust for business strategy. Dependence. A firm can be dependent on a specific other firm due to investments in specific assets geared to that firm. A literature survey identifies five types of specific assets: Personal relations, competence, integration of governance systems, dedicated volume of goods/services, and product/process specialization. Another reason for dependence is the structure of the market, which may lack alternative providers of similar products. Then it becomes difficult or impossible due to large switching costs to substitute one firm with another for the provision of good/services. Trust. A literature survey concerning trust leads to the conclusion that important aspects of trust probably vary between different environments and settings where trust is an issue. Since trust between suppliers and industrial customers is the issue in this study, the notion and implications of trust among strategic decision-makers in that empirical setting would be important. By using the trust literature together with an empirical investigation three types of trust for the study are discerned: Relationship-based, competence-based and moral based trust. Dependence and trust. There is a temporal interplay between trust and dependence. Trust is expectation concerning the future. Dependence differs from trust by being formed in the present time and may therefore become a means to avoid the problems in assessing the future. But when you choose to trust someone, as a consequence you become dependent. Interrelationship between dependence and trust is thus complex and intertwined. It varies with task, situation and persons involved. The order of events in time has an impact. Earlier actions by actors influence later ones. Trust develops stepwise in repeated encounters between the parties. The parties’ actions towards each other and the evolvement of action processes seem to be the key to understanding suppliers’ and customers’ dependence and trust. This interplay is in the paper illustrated with dependence and trust development in two dyads of supplier – industrial customer. In the cases we could discern that meaning construction with dependence and trust, interrelated with action, can lead to improved or deteriorated business relations between the parties. As in the cases patterns of virtuous circles or vicious circles may emerge. Expectations concerning the other party, i.e. trust, could thus change substantially, leading to different types of action than before. Conclusions concerning business strategy. Dependence and trust have different impacts on a firm’s strategy and consequently on strategic change. Dependence indicates preconditions for action and what action is precluded due to the characteristics of business between the parties in terms of specific assets and substitutability. In all, dependence sets limits for strategy, wide or narrow. Trust, on the other hand, can be a driving force shaping strategy, opening up possibilities in markets and products as well as governance systems linking parties. But lack of trust and deteriorating trust may also preclude business that could otherwise have been done. There needs to be trust backing up any viable strategy and strategic change. Furthermore, it is vital that the parties concerned convey in their communication what they consider to be meanings in their business. If they have dissimilar views on dependence, action may become disjointed and not understood by the other party. Likewise, openness concerning trust in one another is needed in order to display mutuality in trust or build mutual trust. On industry level trust in supplier relationships at firm level can be promoted by providing information exchange and arenas for that purpose to support potential business partners to embark upon trust development. Society, in its policy-making, can promote trust on firm level by clear-cut rules of the game, which – among other things – will reduce the risks that parties in an exchange will go to disjointed action due to different interpretations of what society requires from firms in business.supply chain; strategy; business relationship

Does being R&D intensive still discourage outsourcing? : evidence from Dutch manufacturing

Being R&D intensive has traditionally been seen as an impediment to outsourcing. This study confirms that empirically this was the case for a set of manufacturing industries in the Netherlands in the early 1990s but also shows that R&D intensity became a positive predictor for changes in outsourcing levels over the 1990s, suggesting firms in R&D intensive industries have increasingly started to rely on partnership relations with outside suppliers. This confirms the need to move the analysis from scale, opportunism and appropriation concerns to a relational perspective when studying outsourcing in R&D intensive industries

Vertical Integration and Dis-integration of Computer Firms: A History Friendly Model of the Co-evolution of the Computer and Semiconductor Industries

In this paper we present a history-friendly model of the changing vertical scope of computer firms during the evolution of the computer and semiconductor industries. The model is "history friendly", in that it attempts at replicating some basic, stylized qualitative features of the evolution of vertical integration on the basis of the causal mechanisms and processes which we believe can explain the history. The specific question addressed in the model is set in the context of dynamic and uncertain technological and market environments, characterized by periods of technological revolutions punctuating periods of relative technological stability and smooth technical progress. The model illustrates how the patterns of vertical integration and specialization in the computer industry change as a function of the evolving levels and distribution of firms' capabilities over time and how they depend on the co-evolution of the upstream and downstream sectors. Specific conditions in each of these markets - the size of the external market, the magnitude of the technological discontinuities, the lock-in effects in demand - exert critical effects and feedbacks on market structure and on the vertical scope of firms as time goes by