Empirical Analysis on the Openness of Buyer-Supplier Relationships and Productivity in the Japanese Automobile Parts Industry

In this paper, we investigate the causes and impacts of the recent changes in the inter-firm business relationships in the Japanese automobile industry from 1994-2010. Our main results are the following: First, we find that buyer-supplier relationships in the automobile industry in Japan have become more open. Furthermore, productivity differences between suppliers with multiple clients and those with only one assembler client have expanded gradually in recent years. Second, by estimating a cost function, we find that the efficiency of supplier firms declines with an increase in the number of assembler clients, but that the magnitude of the negative effect of the number of clients on production efficiency has been diminishing over time. Third, comparing the attributes of suppliers with multiple assembler clients to those of suppliers with only one assembler client and the second or lower tier suppliers, we find statistical differences not only in structural factors such as firm size and foreign ownership rate but also in firm activities such as research and development (R&D) and export as well as business performance such as productivity, profitability, and survival rate. These results indicate that a technological change such as "modularization" in parts and components probably weakens the importance of inter-firm coordination in the automobile industry in Japan, enhances the openness of the buyer-supplier relationships, and increases the differentials between suppliers with and without open relationships with assembler clients.