Japanese carmakers are reinforcing close relationships with leading suppliers that they established under traditional Japanese keiretsu system - and away from the contractual focus of western OEM-supplier relations, according to SupplerBusiness.com.

Keiretsu are the traditional affiliations of suppliers at each of the major Japanese carmakers.

Each carmaker had, in the growth phase of the Japanese industry, its own association of suppliers, often managed by former OEM executives with minority OEM shareholdings.

The system aligned the interests of the suppliers with the carmakers, and seemed to create a network that was able to optimise the performance right across the supply chain.

However, with the growth of large competent global tier 1 suppliers in the late 1990s and the financial crisis of much of the Japanese car making industry, the keiretsu model appeared to be on its way out.

When Renault acquired a controlling stake in Nissan, Carlos Ghosn made it one of his objectives to sell off Nissan's shareholding in many of its keiretsu companies as part of Nissan's program to develop a more internationally competitive supplier base.

Mazda, with Ford, and later Mitsubishi, with DaimlerChrysler, moved in the same direction. Only Toyota, whose strong group suppliers such as Denso and Aisin, appeared able to compete on a global basis, and Honda, stayed with the traditional Japanese structure.

Even within Toyota there were moves to boost the systems capability of its supply base by mergers and joint ventures within the core supplier base.

Nissan's rapid turnaround and experience of working with leading first tier suppliers have meant that pressure to reduce its shareholding in former keiretsu companies has eased.

Nissan continues to work very closely with leading former keiretsu suppliers on core modules and systems. In fact Nissan's move to greater reliance on its suppliers has deepened the carmaker's relationship with some of its core suppliers.

CalsonicKansei senior vice president Masataka Moringa says that to develop modules for a car maker successfully, a supplier must know its customer very well indeed, and the customer must have a great amount of faith in turn in the supplier. CalsonicKansei is the leading supplier of cockpit and front-end modules to Nissan.

Recent developments have ended up reinforcing some traditional relationships. At Mazda, the initial move to international Ford purchasing standards has been reversed, according to Japanese supplier executives, and Mazda does not require Ford's controversial global terms and conditions.

In the last few months, with the break-up of the Mitsubishi alliance with DaimlerChrysler, Mitsubishi executives indicated that they want to move back to a closer relationship with some of their traditional suppliers.

The shift back to traditional Japanese approaches is not complete. Nissan remains halfway between the traditional Toyota relationship with its keiretsu suppliers and the Big Three way of doing business, says Toyohiko Shimada, vice chairman and managing director of JAPIA, the Japanese auto parts manufacturers' association.

Smaller Japanese suppliers under threat
Shimada, says that smaller Japanese suppliers are challenged by the globalisation of the Japanese OEMs and the internationalisation of sourcing, particularly of commodity components.

But overall the Japanese parts industry has succeeded in avoiding the hollowing out that has affected other sectors of Japanese industry, such as electronics or car making itself in the last decade.

The Japanese OEMs have been assembling more and more vehicles abroad and domestic production has fallen in most years since 1990. Compared with 1990, the index of car production is now around 75% of its peak, but parts production is almost 110% of 1990 levels, says Shimada.

The Japanese industry still has a very large surplus in trade in auto parts, although the gap is narrowing. Labour-intensive products such as wiring harness switches and standard products have been moving abroad, forcing closures in the Japanese industry.

Shimada sees the problem as particularly acute for small and mediuum-sized Japanese enterprises JAPIA is working with the smaller suppliers to try to help them win markets abroad, and has sent missions to China and eastern Europe, to allow these companies to try to develop new business there.

Three years ago, Japan exported ¥4trn worth of automotive parts, JAPIA estimate, while importing only ¥500bn worth of parts, but imports are increasing very rapidly, says Shimada, and the relationship is now 5:1.

In 2003 exports were worth ¥4.5trn and imports of parts ¥900bn. Japan still enjoys a big balance of trade advantage with China.

Shimada points out that at the moment exports to China are also increasing rapidly because of new operations of Toyota, Nissan and Honda. Japan exported almost ¥350bn worth of parts into China in 2003, compared with ¥135bn of imports.

"Quality and price is very important and if you compare the cost and quality produced in China, it is not so cheap compared with Japan", says Shimada, but he says that "imports from China are increasing very rapidly".

- SupplierBusiness.com

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