1997 Reports

Changing firm boundaries in Japanese auto parts supply networks

Ahmadjian, Christina L.; Lincoln, James R.

The Japanese and the US business presses are full of articles about change in Japanese business practices-in particular, changes in relationships between customers and suppliers. Are closely knit networks of customers and suppliers-the keiretsu-breaking down? We argue that while there is no sign of a dramatic, abrupt breakdown in the system, Japanese automakers are beginning to rethink the make versus buy decision. Automakers are taking firmer control over some transactions while allowing others to become more arms-length. These changes are traceable to some basic changes in the transactions themselves-increased power on the part of suppliers due to changes in technology and globalization, and decreased need for customer-specific investments due to standardization. Furthermore, a sense of economic crisis has caused Japanese firms to question the value of certain business practices, and has made it easier for automakers to rethink their contracting relationships.