Rethinking Relationship-Specific Investments: Subcontracting in the Japanese Automobile Industry

Longer ago than either of us cares to remember, one of us attended junior high in Tokyo. On Saturdays, he worked at a printed circuit factory. Or maybe “factory” makes it all sound too grand. A small building in back of a gas station, it had three or four punch presses. The “president” supervised matters (though he actually spent more time hanging out at the gas station), together with a sidekick who did assorted odd jobs besides. Several middle-aged women with no apparent technical education or skill ran the presses. The junior high kid spent his time trimming the sheets to which others would eventually attach the transistors. The women then punched the holes and margins onto the boards, and the president’s sidekick loaded the finished boards onto a truck. Periodically, he returned them to the firm that had ordered the work and brought more sheets to punch along with any press dies the firm needed. The punch presses were standard generic affairs, and the buyer seems to have kept title to the dies. Thirty years later, the other one of us knows the president of a factory near Nagoya. For many years, the firm has done machining work for a first-tier Toyota subcontractor. Unfortunately for the firm, Toyota has increasingly substituted integrated plastic units for the steel shock absorber parts the firm machines. Worried that the Toyota-bound work might disappear, the president has begun to move the firm toward machining materials for computer hard disks on the side. A machining firm can make a wide variety of products, the president seemed to explain. His firm could make products for the automobile industry or otherwise, Toyota-bound or otherwise. If the demand for shockabsorber parts fell, well then it would simply make computer disks instead.