Japan’s Tokai Kogyo Holdings, a components manufacturer closely affiliated with Toyota Motor, has acquired Nissan Motor-affiliated Kinugawa Rubber Industrial Holdings from a group of local financial investors, according to local reports.

The merger marks a significant departure from Japan’s traditional ‘keiretsu’ system, under which major industrial groups have their own captive supply chains, and underscores the importance and urgency of improving economies of scale and reducing costs in Japan’s auto industry as it faces surging competition from Chinese manufacturers globally.

As part of the deal which was completed on 2 November, Tokai Kogyo acquired 100% of the voting shares in Kinugawa Rubber from local financial institutions including the state-owned Development Bank of Japan, for an undisclosed sum.

The acquisition makes Tokai Kogyo the world’s fourth-largest supplier of rubber seals for vehicle bodies, such as weatherstrips, up from eighth place before the merger, according to local analysts.

By consolidating their operations, the two companies are expected to generate significantly greater economies of scale in areas such as raw material purchasing, R&D and production, with synergies likely to result in plant closures in global markets to reduce overcapacity and overlapping operations.