Japanese subcontracting in mainland China: a study of Toyota and Shanghai Koito

Abstract

PurposeThe purpose of this article is to better understand Japanese manufacturing in mainland China and clarify how traditional Japanese subcontracting has changed and is changing to fit the economic environment there.Design/methodology/approachThis article looks at the subcontracting practices of the Toyota Group along with the evolution of Shanghai Koito's operations in mainland China. The research for this study was conducted from 1995‐2003 and is based on visits to Toyota's China headquarters in Beijing and its technical center in Tianjin, Shanghai Koito Company, Sichuan Toyota, and Tianjin Toyota.FindingsWhen Japanese style subcontracting in mainland China is compared with that of traditional Japanese subcontracting, a stark contrast is revealed. First of all, it is clear that Japanese‐affiliated enterprises in China are moving away from an insular, vertical subcontracting structure dominated by a single assembler. In the new subcontracting system, characteristic features – such as a broad customer base and localization – contrast with earlier features that included a substantial delegation of authority, regulated interfirm competition, and long‐term relations.Research limitations/implicationsThis paper is based on two case studies and so, while its findings may be accurate for the companies in question, helpful for understanding Japan's auto industry in mainland China, and may be more widely applicable, the findings are unlikely to be universally applicable.Practical implicationsWith short‐term guidance corresponding to the needs of localization and the effective use of cheap labor coming to the fore, the examples of Toyota and Shanghai Koito may provide helpful illustrations of the kind of adaptation needed to succeed in mainland China. In particular, by moving away from a reliance on its traditional Japanese customers for sales, Shanghai Koito seems to have positioned itself well to avoid the hardship of dwindling sales that other more traditionally oriented Japanese suppliers have begun to face. Moreover, its growing independence may be an important indicator of what the future may look like for Japanese manufacturing.Originality/valueLooking at the history of industrial development in East Asia, the adaptation of Japanese business practices to different economies in the region has been an important theme. This study provides an up‐to‐date review of a number of current issues facing Japanese automakers as they develop their operations in mainland China.