1997 Reports

Japanese auto parts supply networks and the governance of interfirm exchange

Ahmadjian, Christina L.

This paper examines purchasing transactions and ownership ties between 11 Japanese automakers and 237 suppliers. Although automakers' equity stakes in suppliers are highly symbolic, they play an economic role as well. Automakers hold shares of suppliers that dedicate to them a large percentage of output, suppliers from which they purchase many different parts, suppliers of difficult to manufacture parts, and small suppliers, indicating that ownership stakes in suppliers are credible commitments facilitating relationship-specific investments. Consistent with a transaction cost interpretation but in contrast to predictions of resource dependence theory, the total number of suppliers and the degree of an automaker's internal production of a part are not related to ownership stakes. I conclude that embeddedness and transaction cost explanations are complementary: embedded ties can serve as a transaction-cost minimizing governance structure. I further conclude that buyer-supplier relationships in the Japanese automotive industry reflect a logic of commitment rather than a logic of control and exploitation.