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Toyota and Nissan: Reinterpretation of the Japanese Auto Keiretsus Author Anderson, Evelyn Published 2013 Thesis Type Thesis (PhD Doctorate) School Griffith Business School DOI https://doi.org/10.25904/1912/666 Copyright Statement The author owns the copyright in this thesis, unless stated otherwise. Downloaded from http://hdl.handle.net/10072/367219 Griffith Research Online https://research-repository.griffith.edu.au January 2013 Toyota and Nissan: Reinterpretation of the Japanese Auto Keiretsus Evelyn Anderson MBA M.Pu. Admin Department of International Business and Asian Studies Griffith Business School Griffith University Submitted in fulfilment of the requirements of the degree of Doctor of Philosophy January 2013 ABSTRACT Toyota is one of the most successful companies in the world, when measured by market shares and profitability. Journal articles and books explaining Toyota’s success abound. More recent research has tended to focus on Toyota alone while earlier studies examined the competitive advantage of the Japanese automobile industry as a whole. The path of inquiry into Toyota’s success began with the concept of keiretsu. Keiretsu is a Japanese form of networking. It is typically found in the automobile and electronics industry. It involves close collaboration between the assemblers and their respective parts suppliers for mutual benefits, and it is thought to be initiated by private enterprises with no relation to government industrial policy. Both Toyota and Nissan are believed to have adopted similar keiretsu governance, which is considered by academia and industry experts as one reason why in the 1980s and the 1990s, Japan as a whole outperformed the auto industry in both the U.S.A. and Europe. However, the 1990s saw Nissan struggling to keep up with Toyota’s performance. Nissan, which had supposedly adopted the same governance structure as Toyota, found itself increasingly mired in debt and finally abandoned its keiretsu supplier network in 1999. The concept of keiretsu as a source of competitive advantage for the Japanese automobile industry is heard no more. Academia turns to the Toyota production system in search of the secrets that drive Toyota’s success beyond imitation. This thesis questions the assumption that Toyota and Nissan shared similar governance structures. It examines how a post-war industrial policy led to the adoption of two different keiretsu structures by Toyota and Nissan as each assembler had a specific set of resources and competences. However, different keiretsu structures did not result in inter-firm performance differences between the two competitors throughout the duration of the industrial policy. What then is the source of Toyota’s competitive advantage and its inimitability? This dissertation reinterprets the post-war business history of the Japanese automobile industry and unravels how an unusual bargaining process between Toyota and its most significant strategic partner – Denso – confounded researchers in the literature. i CANDIDATE’S DECLARATION I declare that this work has not been previously submitted for a degree or diploma in any university. To the best of my knowledge, the thesis contains no material previously published or written by another person except where due reference is made in the thesis itself. Evelyn Anderson iii ACKNOWLEDGEMENTS This thesis project has received research funding from the Nippon Foundation, Nagoya University of Foreign Studies, Australian Catholic University (ACU), and various travel grants from Griffith University, ACU, University of Adelaide and the Australian National University (ANU). The idea for this thesis germinated during a seminar session at the University of Queensland, and I am grateful for Dr. Rodney Samimi and Associate Professor Clive Edwards for the insight they provided. Professor Leong Liew is my Principal Supervisor, and Professor E.A. Selvanathan is my Associate Supervisor. I would like to thank Professor Liew for his thoughtful and meticulous observations despite his considerable professional commitments. He had always been generous with his valuable time in reading the many drafts of this thesis and his critical comments are much appreciated. I would like to thank Professor Selvanathan for his encouragement, and inputs on the quantitative methods of this thesis. My thanks also go to Associate Professor Javed Maswood, who was my first supervisor and who took my thesis through to the PhD candidature confirmation stage. I would also like to thank the anonymous reviewers and editors whose comments on the various journal articles, which I published as a sole author in 2003, 2004, 2007 and 2010, are greatly appreciated. To the staff of Griffith’s Drop-in Centre, my sincere thanks for their wonderful support and expertise. They had always come to the rescue when I struggled to fit in the many graphs and tables for presentation in this thesis. Last but not least, I would like to thank my family – Wallis, Liam, Kieran, Abraham and Thea – for their understanding and unwavering support throughout the entire process of this research project. v TABLE OF CONTENTS List of Tables viii List of Figures x Abbreviations xii Chapter 1 Introduction ............................................................................................................ 1 Chapter 2 A Review of Japanese Auto Industry Research and Methodology ..................... 12 Chapter 3 Post-war Automobile Industry Policy and Keiretsu Formation .......................... 37 Chapter 4 Keiretsu Investment Decisions of Toyota and Nissan in Response to the Provisional Act ......................................................................................................... 71 Chapter 5 Toyota and Nissan: Two Different Keiretsus .................................................... 123 Chapter 6 The ‘Toyota Advantage’ Built on an Inter-firm (Hybrid) Relationship with Denso ...................................................................................................................... 169 Chapter 7 Hybrid vs. Hierarchy – How Toyota’s Keiretsu Outperformed Nissan’s Keiretsu with Denso Playing a Key Role ............................................................... 199 Chapter 8 A Rival Explanation of the ‘Toyota Advantage’ and Its Flaws ......................... 241 Chapter 9 Conclusion ......................................................................................................... 265 Appendix 4 277 Appendix 5 311 Appendix 6 313 Appendix 7 320 Bibliography (English) 346 Bibliography (Japanese) 356 vii LIST OF TABLES Table 2.1: A Comparison of Methodology - Cusumano (1985), Fruin (1992), Fujimoto (1999) and This Thesis ................................................................................................... 19 Table 2.2: Passing the Four Methodological Soundness Tests ...................................... 34 Table 3.1: Reliance on Foreign Technology by Industry 1951 ...................................... 41 Table 3.2: Outsourcing Ratios for Toyota, Nissan and the Auto Industry 1951-1954 ... 44 Table 3.3: MITI’s Measures in Promoting SME1952-1956........................................... 46 Table 3.4: Objectives of the Keiretsu Performance Appraisal Program 1952 ............... 47 Table 3.5: Eligible Industries for Kishinhō Funding & Machinery Import Approval .... 49 Table 4.1: Toyota Increasing Shareholdings in its Keiretsu Member Firms 1995-2000 73 Table 4.2: Winner and Losers in the Early 2000s (Around the Time Nissan Axed its Keiretsu) ......................................................................................................................... 74 Table 4.3: Production Volume Differences between Nissan and Toyota prior to the Outbreak of the Second World War ............................................................................... 87 Table 4.4: Toyota and Toyoda Auto Loom Spun off Divisions in Financial Hard Times ........................................................................................................................................ 88 Table 4.5: Toyota Post-1952, the Favoured One ............................................................ 91 Table 4.6: Resource Heterogeneity in the Early Years .................................................. 93 Table 4.7: Average Investment and Control of Keiretsu Firms in 1970 ...................... 119 Table 4.8: Comparative Change in Investment in Keiretsu Firms 1970-1971 ............. 120 Table 5.1: A Comparison of Nissan’s Strategy with Toyota’s Strategy over Four Dimensions ................................................................................................................... 125 Table 5.2: Core Keiretsu Suppliers of Toyota and Nissan 1956-1970 ......................... 132 Table 5.3: Share of Nissan’s Core Keiretsu in Nissan’s Cost of Production ............... 134 Table 5.4: Share of Toyota’s Core Keiretsu in Toyota’s Cost of Production .............. 135 Table 5.5: Relationship between Toyota and Core Keiretsu Suppliers in 1957 and 1971 ...................................................................................................................................... 136 Table 5.6: Nissan’s Relation with its Three Subsidiaries in 1956 and 1971 ................ 138 Table 5.7: Nissan had 44 First-tier Keiretsu Suppliers in 1970.................................... 146 Table 5.8: Number of Successful Kishinhō Funding Awarded to Each Network ........ 147 viii Table 5.9: Nisssan’s Stake in 1970 in the Sixteen Successful Kishinhō Firms ............ 148