From Pace-Setter to Laggard: Production Networks in the Japanese Electronics Industry

Japan’s post-war success in the assembly industries has frequently been credited to the particular ways in which productive activities are organised. Faced with the ‘make or buy’ decision, Japanese manufacturing companies in the automobile, electronics and precision instruments industries have tended to choose the latter, forging stable, long-term business relationships with dedicated suppliers. Consisting of the vertical production keiretsu as well as more or less exclusive relationships with formally independent subcontractors, such production networks provided an efficient solution for dealing with market imperfections such as transaction costs, asset specificity and innovation related issues.

Relying on the network mode of production, Japanese electronics companies rapidly rose to a dominant position in world markets for a wide range of product categories, especially in the consumer electronics industry. However, brought about by a variety of competitive challenges over the past decade or so, this advance has stalled or even reversed, though pockets of strength remain. The purpose of the presentation is threefold: First, it will show how Japanese companies have responded to the challenges and how this has affected their production networks. Second, it considers how this response reflects on what are typically considered the main strengths of quote;traditionalquote; Japanese network patterns. Finally, a tentative evaluation of the adequacy of the response will be offered.

It will be argued that Japanese production networks no longer can be described as long-term, stable and closed. Cost pressures coupled with growing technological complexity have put a premium on increased flexibility that far outweighs the gains associated with conventional business relationships. Relational contracting remains important, but the identity of constituent network members is becoming increasingly fluid and the nature and content of relationships changing rapidly. Overall, however, the relative loss in competitiveness suggests that Japanese companies failed to adjust their network configurations in a timely manner. Rather than setting the pace and actively shaping important industry trends, from the 1980s onwards and in contrast with earlier decades, they have been falling behind and hence forced to follow more open network patterns pioneered elsewhere.

Ralph PAPRZYCKI is a Ph.D. candidate in Economics at the School of Oriental and African Studies, University of London, and a research student at Hitotsubashi University as well as a Visiting Research Fellow at the Ministry of International Trade and Industry.