Do supplier associations foster transactional relationships between automakers and suppliers? Evidence from Japan

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Abstract:

1. Purpose
This study explores how horizontal supplier–supplier relationships affect vertical buyer–supplier relationships in the automobile industry, and particularly investigates whether what auto parts suppliers learn through an affiliation with a supplier association promotes new as well as existing transactional relationships with automakers.
There has been longstanding debate over how buyers and suppliers can build product development capabilities that are exerted in one specific buyer–supplier relationship (e.g., Dyer et al., 2018; Mesquita et al., 2008; Poppo et al., 2016). In the automobile industry, a large body of studies has shown that successful automakers are actively involved in suppliers’ capability development (e.g., Aoki and Wilhelm, 2017; Lawson et al., 2015; Nagati and Rebolledo, 2013; Schroeder, 2020). Among various management methods for suppliers’ capability development, forming horizontal relationships among suppliers has attracted attention. While suppliers that deliver parts to automakers are in a competitive relationship with one another, supplier associations, such as Kyohokai of Toyota Motor Corporation, form a consortium of parts suppliers to Toyota and promote information sharing between Toyota and its suppliers as well as mutual learning about auto part technology among suppliers (Wilhelm 2011; Wilhelm and Sydow, 2018). Supplier associations encourage and enhance close-knit collaboration between an automaker and its suppliers, which increases product development performance (Dyer and Nobeoka, 2000).
Research on horizontal supplier–supplier relationships and mutual learning between suppliers has mainly been based on qualitative research (Pathak et al., 2014; Wilhelm, 2011). The current study quantitatively verifies how horizontal supplier–supplier relationships promote mutual learning for suppliers and influence vertical transactional relationships with automakers.

2. Hypotheses
The focus of this study is on auto parts transactions in the Japanese automobile industry. In the Japanese automobile industry, there has been a long-standing tradition of keiretsu transactions; that is, parts suppliers build long-term and durable transactional relationships with one specific automaker. Within this system, each automaker organizes a supplier association with its keiretsu suppliers. Since the 2000s, the industry structure in the automobile sector has drastically changed because of globalization and digitalization (e.g., Jacobides et al., 2016; MacDuffie, 2013). Consequently, Japanese automakers began to allow non-keiretsu suppliers and foreign suppliers to enter the market, which motivated suppliers to participate in supplier associations beyond their previous keiretsu relationships (Aoki and Lennerfors, 2013).
We hypothesize that participation in a new supplier association beyond their keiretsu fosters suppliers’ product development capabilities, which lead to winning transactions with the automaker that organizes that association. Furthermore, learning and capability building through an affiliation with a supplier association strengthen transactions with the automaker with whom they have an existing transactional relationship. In line with this thought, we present the following hypotheses:

H1: Participating in a supplier association outside the keiretsu of the focal supplier positively affects transactional relationships with the automaker that is organizing that supplier association.
H2: Participating in a supplier association outside the keiretsu of the focal supplier positively affects transactional relationships with the keiretsu automaker with whom the supplier originally worked.

3. Method
Our empirical study examines whether a supplier’s participation in a new supplier association affects its transactional relationships with automakers. Data were collected from Nihon jidousha buhin sangyo no jittai (“The survey concerning the Japanese automotive parts industry”) and Jidousha buhin nihyaku hinmoku no seisan ryuutsuu chousa (“The survey concerning the production and sales of 200 automotive parts”). Among the Japanese Big Three, this study focuses on Nissan’s and Honda’s keiretsu suppliers and analyzes the effect of their joining Toyota’s supplier association Kyohokai, which has been shown to significantly contribute to supplier development (Dyer and Nobeoka, 2000; Wilhelm, 2011). Nissan’s and Honda’s keiretsu suppliers are identified by shareholding relationships with either Nissan or Honda.
Our unit of analysis was supplier–part pairs; we identified which company supplied each part, such as the Keihin gasoline injector or the Unipres fuel tank. Our dataset contains 233 supplier–part pairs that were produced by either Nissan’s or Honda’s keiretsu suppliers.
The dependent variables of this study include changes in the market share of transactions with Toyota between 2002 and 2016, and with the original keiretsu automaker (i.e., Nissan or Honda). The independent variable is new participation in Toyota’s supplier association during 1996–2013 (1 = Yes, 0 = No). The control variables include Nissan’s keiretsu (1 = Nissan, 0 = Honda), the number of parts produced by the focal supplier, the number of suppliers with the focal part, the internal sourcing of the focal part by automakers (Yes = 1, No = 0), the engine part category (Yes = 1, No = 0), and the electronic part category (Yes = 1, No = 0).

4. Results
The results of the ordinary least squares regression analysis show that new participation in Toyota’s supplier association significantly increased a supplier’s market share of the transactions with Toyota (p < .05). Furthermore, it significantly increased the market share of the transactions with the original keiretsu automakers (i.e., Nissan’s keiretsu suppliers’ transactions with Nissan or Honda’s keiretsu suppliers’ transactions with Honda) (p < .10). Therefore, our two hypotheses are supported.

5. Theoretical and practical implications
The results of this study imply that participating in supplier associations fosters mutual learning among suppliers and contributes to suppliers’ capability building. A large body of studies have pointed out that suppliers’ product development capabilities are built through vertical buyer–supplier relationships. This study sheds light on the importance of horizontal supplier–supplier relationships to enhance suppliers’ capabilities.
This study also provides practical implications, primarily for auto parts suppliers, including that participation in supplier associations not only increases new business transactions with the automakers that are organizing those associations but also increases existing transactional relationships. Therefore, active involvement with supplier associations and learning through supplier–supplier relations is considered an effective strategy for auto parts suppliers to build their business.