Transaction costs and capability factors in dual or indirect distribution channel selection: An empirical analysis of Japanese manufacturers

This study focuses on manufacturers' selection of dual or indirect channels. Although several previous studies based on transaction cost theory investigate transaction cost factors in choosing dual or indirect channels mainly in the United States, this study examines transaction costs and capability factors for such a choice in Japan. The relationships are tested with survey data from Japanese industrial goods manufacturers (n = 429). Compared to previous studies, this study presents three important findings. First, unlike previous studies, two transaction cost factors—asset specificity and behavioral uncertainty—do not exhibit the relationships predicted by transaction cost theory. Interestingly, asset specificity is negatively related to the use of dual channels. Second, two capability factors not assessed in prior studies—market orientation capabilities and differences in channel members' capabilities—exhibit significant positive relationships with the selection of dual channels. Third, capability factors are found to be more important than transaction cost factors in explaining dual or indirect channels in Japan. This study also discusses the influence of the Japanese channel context on the results.     

Supplier relations and management: A survey of Japanese,Japanese-transplant,and U.S. auto plants

This article presents the results of a questionnaire survey sent to a sample of automobile manufacturers in the United States and Japan (including Japanese-managed plants in the United States) during the spring of 1990. The data support observations that Japanese and U.S. practices tend to differ in key areas and Japanese suppliers perform better in dimensions such as quality (defects) and prices (meeting targets, reducing prices over time); and that Japanese-managed auto plants established in the United States have, in general, adopted Japanese practices and receive extremely high levels of quality from Japanese as well as U.S. suppliers. These findings provide evidence that Japanese practices and performance levels are transferable outside Japan and suggest that considerable improvements are possible for U.S. suppliers supplying U.S. auto plants. In addition, the survey indicates that U.S. firms have adopted at least some practices traditionally associated with Japanese firms, apparently reflecting some convergence toward Japanese practices and higher performance levels in supplier management.     

A Model of Supplier Integration into New Product Development*

In many industries, firms are looking for ways to cut concept‐to‐customer development time, to improve quality, and to reduce the cost of new products. One approach shown to be successful in Japanese organizations involves the integration of material suppliers early in the new product development cycle. This involvement may range from simple consultation with suppliers on design ideas to making suppliers fully responsible for the design of components or systems they will supply. While prior research shows the benefit of using this approach, execution remains a problem. The processes for identifying and integrating suppliers into the new product development (NPD) process in North American organizations are not understood well. This problem is compounded by the fact that design team members often are reluctant to listen to the technology and cost ideas made by suppliers in new product development efforts. We suggest a model of the key activities required for successful supplier integration into NPD projects, based on case studies with 17 Japanese and American manufacturing organizations. The model is validated using data from a survey of purchasing executives in global corporations with at least one successful and one unsuccessful supplier integration experience. The results suggest that (1) increased knowledge of a supplier is more likely to result in greater information sharing and involvement of the supplier in the product development process; (2) sharing of technology information results in higher levels of supplier involvement and improved outcomes; (3) supplier involvement on teams generally results in a higher achievement of NPD team goals; (4) in cases when technology uncertainty is present, suppliers and buyers are more likely to share information on NPD teams; and (5) the problems associated with technology uncertainty can be mitigated by greater use of technology sharing and direct supplier participation on new product development teams. A supplier's participation as a true member of a new product development team seems to result in the highest level of benefits, especially in cases when a technology is in its formative stages.     

Competitive forces and strategic choice decisions: an experimental investigation in the United States and Japan

Managers operate in a complex, uncertain environment and tend to form simplified models in order to cope with this environment and make competitive strategic decisions (i.e., cost‐leadership, differentiation, or focus). In this study, we use an experimental design to examine the strategic choice decision‐making process in firms located in the United States and Japan. We develop several main‐effect propositions regarding managerial selection of competitive strategies, depending on the competitive forces (buyer power, threat of substitutes, threat of new firm entry, and high intensity of rivalry) they are facing. We propose a main effect due to country of origin: Japanese managers prefer a cost‐leadership strategy more than American managers do. We also propose several interaction effects regarding cross‐national differences in strategy selection between Japanese and U.S. managers. To test our propositions, we collected experimental data from 316 U.S. executives and 459 Japanese executives. We assessed relative impacts of the competitive forces on strategic decision‐making using a multilevel regression analysis. The research findings indicated that high buyer power and high substitution threat were associated with a preference for cost‐leadership strategies, and Japanese managers were significantly more likely to prefer a cost‐leadership strategy than U.S. managers. We also found that, under conditions of high buyer power, U.S. managers were less likely than Japanese managers to enter a market with a differentiation or focus strategy. We found little support for other interaction hypotheses, suggesting points of similarity between U.S. and Japanese managers. We conclude with a discussion of theoretical and managerial implications of our results. Copyright © 2002 John Wiley & Sons, Ltd.     

Black Box Engineering: Redefining the Role of Product Specifications

Original equipment manufacturers (OEMs) in numerous industries recognize the benefits of involving their suppliers in the product design process. Specifications play a central role in guiding that supplier-OEM relationship. For so-called “black-box” parts, the OEM specifies overall requirements for product function and performance, cost targets, and development lead time, and then communicates this information to suppliers, who perform detailed engineering and testing. Black-box engineering marks a fundamental change in the buyer-supplier relationship, and companies that use or plan to adopt this practice must understand the factors that contribute to its successful implementation. Using survey responses from more than 300 suppliers to a European automobile OEM, Christer Karlsson, Rajesh Nellore, and Klas Soderquist identify the problems those suppliers face in the specification process. To provide insight into the context and the causes of those problems, they also describe the results of case studies conducted in the OEM and two suppliers. In this way, they attempt to identify critical factors that can help to improve the specifications process both internally at an OEM and between the OEM and its suppliers. The respondents identified numerous problems that they face in the specifications process. Based on feedback from product development managers and design staff members in the case study companies, those problems are categorized as follows: technical content and the level of detail in requirements, changes of specifications, cost, interpretation and understanding, and supplier participation in the specification process. Black-box engineering redefines the role of specifications. Instead of a fixed document that dictates to the supplier, the specification becomes an open medium for communicating functional and performance requirements and necessary technical adjustments. In other words, black-box products require a highly interactive design process. Product development managers for suppliers and OEMs must understand that they cannot avoid changes in specifications during black-box engineering projects. Rather than view such changes as wastes of time and effort, they should approach the black-box engineering process as a learning opportunity. By working with several parallel sets of functional solutions, which they can validate with the customer before developing detailed dimensional definitions, suppliers can limit the amount of time they lose as a result of changes in specifications.     

Transaction cost implication of private branding and empirical evidence

Branding and transaction cost economics represent two research streams that rarely cross paths in the literature. In this study, I explore the transaction cost implication of private branding, a practice whereby products supplied by unaffiliated manufacturers are sold under private brands owned by retailers. The main thesis is that private branding can preempt a special case of asset specificity called brand specificity, where retailers also invest in the marketing of an outsourced product, but subsequent reputation effects (positive or negative) are specific to the manufacturer who brands the product. Retailers, thus, will not be fully motivated to optimize their investment in product marketing unless they take over the branding right. With potential barriers to private branding being controlled, data obtained from a national chain reveal that the retailer deploys its marketing resources according to the branding status of a product, implying that private branding can deflect the transaction cost of solving the brand specificity problem. The results offer new theoretical insights into branding and transaction cost analysis. This efficiency‐based approach to private branding also provides practitioners with useful guidelines for crafting a branding strategy that will facilitate cooperation between manufacturers and retailers. Copyright © 2009 John Wiley & Sons, Ltd.     

Technology foresight using a Delphi approach: a Japanese-German co-operation

This article describes a joint project conducted from 1991 until 1993 by the Japanese National Institute of Science and Technology Policy (NISTEP) and the German Fraunhofer institute for Systems and Innovation Research (ISI). Some first outcomes, and different alternatives on how to use the data for trend interpretation and priority setting, are described.
The Japanese Delphi survey is conducted every five years and was first undertaken in 1971. In 1992, NISTEP and ISI agreed on a joint project. About 3000 Japanese experts were asked to answer more than 1000 questions based on 16 different technological areas. With financial aid from the Federal German Ministry of Research and Technology (BMFT) the Japanese fifth Delphi survey was replicated in Germany. The Japanese questions were translated and more than 1000 German experts responded to the questionnaires and judged the possible technological development within the next 20 to 30 years. The aim of this joint project is to compare the Japanese and the German answers in order to analyse possible differences and to understand the cultural influences on technology assessment.     

Price authority and information sharing with competing supply chains

We characterize the degree of price discretion that two competing manufacturers grant their retailers in a framework where demand is uncertain and privately observed by the retailers, while manufacturers only learn it probabilistically. In contrast with the consolidated vertical contracting literature, we assume that manufacturers cannot use monetary incentives to align the retailers’ incentives to pass on their unverifiable distribution costs to consumers. Our objective is to study how, in this context, an information-sharing agreement according to which manufacturers share their demand information affects prices, profits and consumer surplus. While equilibria with full price delegation never exist, regardless of whether manufacturers share information, partial delegation equilibria may exist with and without the exchange of information. These equilibria feature binding price caps (list prices) that prevent retailers from passing on their distribution costs to consumers, and are more likely to occur when manufacturers exchange demand information than when they do not share this information. Manufacturers profit from exchanging demand information when products are sufficiently differentiated, and retailers’ distribution costs are high enough. Yet, expected prices are unambiguously lower when manufacturers exchange demand information than when they don’t, making the information exchange beneficial to consumers.     

The meaning of work: American and Japanese paradigms

In this article it is argued that a fundamental difference exists between the Japanese view of the meaning of work and the American view of this construct. It is suggested that the American orientation is primarily environment-centered, and is based on a traditional stimulus-organism-response (S-O-R) model. In contrast, the Japanese orientation seems to be primarily person-centered, and is based on what might be called an organism-response (O-R) model. The reasons for this difference are explored and both the practical and theoretical implications are examined.In conclusion the author projects a revision of research methodology in the behavioural sciences leading to a more realistic appraisal of the transferability of Japanese management practices to the American environment.Portions of this paper were presented at the Pan Pacific Conference on Business and Technology, Honolulu, March, 1984. It was selected as the Best Paper in the Organizational Behaviour track. The author is indebted to Chuck Behling of Bowling Green State University and Ken Kim of The University of Toledo for their helpful suggestions and comments on an earlier version of this paper.     

The roles of stakeholder support and procedure-oriented management on asset recovery

As the management of returned products is fast becoming a business trend caused by pressure for compliance, asset recovery is increasingly viewed as a fertile area for firms to reduce cost and improve quality. Environmental management is a viable approach for Chinese manufacturers to respond to the escalating international quest for conserving the environment, to tackle the problem of rising raw material costs, and to improve product quality by analyzing returned products. To reach the goals of cost reduction and product quality improvement, manufacturers need to understand how asset recovery can be leveraged through procedure-based practices and stakeholder support to enhance performance. Product type, characterized by different levels of demand uncertainty and time-to-market, may affect the outcomes of asset recovery adoption and should also be taken into account. Drawing on the environmental management and business logistics literature, we provide empirical insights on asset recovery adoption using survey data collected from export-oriented Chinese manufacturers. We find that asset recovery and stakeholder support are complementary in strengthening manufacturers' financial performance regardless of product type. In addition, the performance impact of asset recovery can be substantial when manufacturers' environmental management practices are less procedural, allowing flexibility in the logistics management of product flows.     

The auto makers and their related party transactions in indonesia

This paper provides a profile of three major automobile manufacturers in Indonesia: the Astra group, the Suzuki group and the Matsubishi Krama Yudha group. Together, they control more than 85 percent of the automobile market in Indonesia. Various types of related party transactions in the auto industry and their transfer prices are also discussed. It appears that Japanese multinational companies are playing a dominant role in the development of the auto industry in Indonesia.The research on which this paper is based was funded by the United Nations Development Programme and the Centre on Transnational Corporations.     

Shouldn't Customers Control Customized Product Development?

Nowadays, customized product development (CPD) is increasingly prevalent in business‐to‐business settings, which has motivated manufacturers into development approaches wherein the customer plays an active role. When the customer is merely viewed as a passive receiver of the customized product, the manufacturer won't be able to truly empathize with the customer and might lack important suggestions to create and improve the customized product. It is, after all, the customer that holds pertinent development information and/or expertise. Yet, customers are not always motivated to participate and often need to be convinced about the manufacturer's ability to develop customized products in a timely and cost‐effective manner. Prior literature on interorganizational relationships suggests the use of formal control, i.e., process and/or output control, to fashion activities in line with expectations so that development goals can be attained. Thereupon, this study posits that the customer's use of such formal controls may stimulate customer participation in CPD. In addition, this study investigates whether manufacturers can indeed benefit from customer participation in CPD through improved new product performance. To accomplish the research objectives, survey‐based and accounting data are collected on 63 collaborative CPD projects between a plastics manufacturer and its industrial customers. In conjunction with an add‐on experimental study regarding the effect of formal control on customer participation, this study reveals that the customer's use of formal control significantly increases the level of customer participation in CPD. Additionally, this study confirms that customer participation positively impacts new product performance. Together, these results imply that letting the customer use process and/or output control helps the customer to believe more in the pursuit of CPD goals and successful product customization, thereby encouraging the customer to participate more actively in CPD. Besides, the findings imply that increased access to market and customer need‐related information obtained through customer participation is indeed critical for successful CPD.     

Outsourcing reverse logistics of high-tech manufacturing firms by using a systematic decision-making approach: TFT-LCD sector in Taiwan

Reverse logistics are increasingly crucial for the supply chain strategy of global high-tech manufacturing firms. As reverse logistics operations are significantly more complex than traditional manufacturing supply chains, many high-tech manufacturers are examining the feasibility of outsourcing reverse logistics activities to third party logistics providers (3PLs) from a strategic planning perspective. Internal resources and capabilities are thus examined from a resource-based perspective to identify which reverse logistics service requirements could be fulfilled in-house or outsourced. Therefore, this work presents a systematic approach using the analytical network process (ANP) not only to investigate the relative importance of reverse logistics service requirements, but also to select an appropriate 3PL. Empirical results based on the case of the TFT-LCD sector in Taiwan indicate that information technology management is of priority concern in reverse logistics services. In addition to providing a valuable reference for manufacturers concerned with service requirements for outsourcing, results of this study significantly contribute to the efforts of 3PLs in evaluating whether they comply with potential customer requirements based on their service capabilities.     

Target pricing: Demand-side versus supply-side approaches

The practice of target pricing has been a key factor in the success of Japanese manufacturers. In the more commonly known demand-side approach, the target price for the supplier equals the manufacturer's market price less a percent margin for the manufacturer but no cost-improvement expenses are shared. In the supply-side approach, cost-improvement expenses are shared and the target price equals the supplier's cost plus a percent margin for the supplier. Using a general oligopoly and Cournot duopoly models, we characterize the equilibrium and optimal policy for each approach under various conditions. We find that sharing cost-reduction expenses allows the manufacturer using the supply-side approach to attain competitive advantage in the form of increased market share and higher profit, particularly in industrial conditions where margins are thin and price sensitivities are high.     

Who explores further? Evidence on R&D outsourcing from the survey of research and development

Building off the resource‐based view and the knowledge‐based view, our study aims to examine determinants of firms’ R&D outsourcing, using annually‐conducted firm‐level survey data of Japanese R&D companies from 1984–2012. This survey allows us to measure strategic R&D outsourcing, isolated from those more for cost‐reducing, such as prototyping, testing and inspecting. The results corroborate the argument of complementarity in scale between internal R&D and R&D outsourcing. We also find that firms employing more doctorate holders and diversifying in knowledge spaces tend to make more use of R&D outsourcing. This study sheds light on firms’ absorptive capacity, associated both with higher‐order R&D human capital and diversified knowledge spaces, as determinants of R&D outsourcing.     

On the Relationship between Japanese Manufacturing Firms and their Domestic Subsidiaries

Much past research on ownership policy has dealt with foreign subsidiaries. In this paper, we study the ownership relationship between Japanese firms and their publicly-traded domestic subsidiaries. Using a transaction cost framework, we find that benefiting from high subsidiary profitability is not the sole motivation behind parent firms' decisions regarding equity control of their subsidiaries. Our results indicate that different policies are adopted by Japanese firms with respect to domestic and foreign subsidiaries.     

The limits to'Japanisation'—Just-in-Time, labour relations and the UK automotive industry

Competition from Japanese manufacturers has been particularly fierce in the automotive industry. Consequently, many British manufacturers are now emulating the production and employment policies of their Japanese rivals. But there are limits to such a process, especially in the sphere of labour-management relations and the control of work.     

Matsushita v. Zenith: An economic analysis

The Supreme Court erred by deciding that the proposition — that the Japanese television manufacturers, the defendants inMatsushita, had acted as independent competitors — had greater plausibility than the plaintiffs' charge that they had conspired to depress U.S. prices and take a large part of the U.S. market. Independent competitors would not have exported to the U.S., where prices were much below those in the home market. Moreover, the record evidence showed collusion in both the home and U.S. markets. Intent was also shown by the construction of large capacity to supply the U.S.Professor of Economics, New School for Social Research. I was co-author of Horace J. DePodwin, David Schwartzman, and Marcio Teixeira, "Economic Study of the Japanese Television Industry, prepared for plaintiffs' counsel in the Japanese Electronic Products Litigation, M.D.L. 189, Civ. Nos. 74–2451 and 74–3247 in the U.S. District Court for the Eastern District of Pennsylvania, September 1979 [hereafter referred to as the DePodwin Report]. The present article is based on David Schwartzman,The Japanese Television Cartel: A Study Based on Matsushita v. Zenith (Ann Arbor, Mich.: University of Michigan Press, 1993).     

Risky Business or Competitive Power? Supplier Involvement in Japanese Product Design

Notwithstanding the alleged risks of outsourcing design work, leading manufacturers in the Japanese automotive industry collaborate closely with their key suppliers. Despite widespread recognition of the effectiveness of these close-knit supplier networks, however, little research exists on the factors that affect the purchase of design work from suppliers. S. Nazli Wasti and Jeffrey K. Liker fill this gap by exploring the factors that affect Japanese automotive firms' purchase of design work from their component suppliers. Using data from a survey of 122 Japanese automotive component suppliers, their study addresses two key questions. First, what factors lead Japanese buyers to involve some suppliers heavily in design while giving others relatively little control over design decisions? And second, does the Japanese practice of involving suppliers in design offer performance benefits? The study focuses on first-tier suppliers of parts, assemblies, and complete subsystems (e.g., audio, fuel and emissions, heating and air conditioning). The study does not include suppliers of raw materials and chemicals, assembly and processing equipment, indirect materials, tooling and dies, computers and software, or engineering and business consulting services. The study breaks down the broad concept of supplier involvement in design work into three measurable elements: the extent to which the supplier influences decision-making during the early stages of product development; the amount of control the buyer retains over the design; and the frequency of design-related communication between the buyer and the supplier. Factors that have a positive effect on the level of supplier involvement among the companies studied include technological uncertainty of the component and the supplier's in-house technical capabilities. For companies in the study, the level of competition in the supplier market has a negative effect on the degree of supplier involvement in design. The responses indicate that supplier involvement offers performance benefits for both the supplier and the buyer. For the supplier firms studied, increased involvement in the design process permits greater focus on design for manufacturability (DFM). And of course, supplier-generated design improvements clearly benefit the buyers, allowing these firms to capitalize on the experience and the insight that their suppliers have regarding the parts that they supply.     

Balancing Development Costs and Sales to Optimize the Development Time of Product Line Additions*

Development teams often use mental models to simplify development time decision making because a comprehensive empirical assessment of the trade‐offs across the metrics of development time, development costs, proficiency in market‐entry timing, and new product sales is simply not feasible. Surprisingly, these mental models have not been studied in prior research on the trade‐offs among the aforementioned metrics. These mental models are important to consider, however, because they define reality, specify what team members attend to, and guide their decision making. As such, these models influence how development teams make trade‐offs across the four metrics to try to optimize new product profitability. Teams with such an objective should manage to a development time that minimizes development costs and to a proficient market‐entry timing that maximizes new product sales. Yet many teams use mental models for development time decision making that focus either just on development costs or on proficiency in market‐entry timing. This survey‐based study uses data from 115 completed NPD projects, all product line additions from manufacturers in The Netherlands, to demonstrate that there is a cost to simplifying decision making. Making development time decisions without taking into account the contingency between development time and proficiency in market‐entry timing can be misleading, and using either a sales‐maximization or a cost‐minimization simplified decision‐making model may result in a cost penalty or a sales loss. The results from this study show that the development time that maximizes new product profitability is longer than the time that maximizes new product sales and is shorter than the development time that minimizes development costs. Furthermore, the results reveal that the cost penalty of sales maximization is smaller than the sales loss of development costs minimization. An important implication of the results is that, to determine the optimal development time, teams need to distinguish between cost and sales effects of development time reductions. To determine the relative impact of these effects this study also estimates the elasticities of development costs, new product sales, and new product profitability with regard to development time. Armed with this knowledge, development teams should be better equipped to make trade‐offs among the four metrics of development time, development costs, proficiency in market‐entry timing, and new product sales.