The Japanese automobile parts supplier system: the triplet of effective inter-firm routines

Abstract

The paper proposes a systematic explanation as to how the Japanese automobile parts supplier system generated international competitive advantages in the 1980s and thereafter. Based not only on a survey of existing literature, some of which has never been introduced in English in the past, but also the author's original data and conceptual framework for coherent interpretation of the phenomena, the paper argues that the coexistence of three conditions, as mutually complementary factors, enabled such a competitive advantage: long-term relational transactions, bundled outsourcing, and dynamic capability-building competition among a small number of suppliers. These three patterns of inter-firm relations have been much discussed in existing literature as separate factors, but they have not been regarded as a coherent total system. This paper proposes a hypothesis that the performance advantage of this system should be ascribed at least partly to the complementarity of the triplet of the inter-firm routines. Despite the deterioration of profit performance of some Japanese parts suppliers in the late 1990s due partly to a domestic recession, appreciation of the yen and strategic mistakes, as well as international merger and acquisitions involving some Japanese firms, the above principle of operational routines seems to be basically unchanged. Recent topics such as modularisation and internet procurement should be evaluated from the point of view that the effectiveness of the three routines mentioned above should not be sacrificed in the name of modularisation for the sake of modularisation, or e-business for the sake of e-business.