“Japanese manufacturing industry owes its competitive advantage and strength to its subcontracting structure.” — Ministry of International Trade and Industry1

Was Japan’s powerful Ministry of International Trade and Industry (MITI) serious when it made this statement? Is it possible that much of Japan’s competitive advantage can be attributed simply to its subcontracting structure? Indeed, evidence from an increasing number of industries and sources suggests that much of the Japanese success can be attributed to Japanese-style business partnerships. Consider the auto industry, for example. From 1965 to 1989, the combined Japanese market share of worldwide passenger car production jumped from 3.6 percent to 25.5 percent. In striking contrast, the market share of U.S. firms dropped from 48.6 percent to 19.2 percent.2 Moreover, by the early 1980s, Japanese firms had achieved a 20 percent to 25 percent cost advantage, per car, versus U.S. automakers, while receiving customer satisfaction scores 50 percent higher than those of competing U.S. cars. Can we attribute the astonishing Japanese success to their partnership approach? Consider the following:

• American automakers are more vertically integrated than their Japanese counterparts, with approximately 48 percent of parts manufactured internally as opposed to 25 percent for Japanese automakers (see Figure 1).
• Even though U.S. automakers are more vertically integrated,... To read the complete article, login or sign-up using the form below.
  

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