21COE, University of Tokyo

MMRC Discussion Paper No. 116

MMRC-F-116

Enhancement of the advanced R&D cooperation
between automakers and suppliers in the Japanese
automobile industry
Hosei University
Yoshinori Konno
March 2007

21COE, University of Tokyo

MMRC Discussion Paper No. 116

Enhancement of the advanced R&D
cooperation between automakers andsuppliers in the Japanese automobile industry
Hosei University
Yoshinori Konno
March 2007

1. Introduction
In many industries, global competition has grown fiercer, technologies have been more
complicated, market needs have further upgraded, the variety of goods and services have increased
substantially and product lifecycles have been shortened. Companies in these industries are now
required not only to improve the speed and quality of product development projects but also to lower
development costs (e.g., Wheelwright and Clark, 1992). Also knowledge for researching, developing
and commercializing new goods or services has increased explosively (e.g., Badaracco, 1991).
Consequently it is no longer realistic for any company alone to cover all product development
processes, and it is now essential for all companies to cooperate with others in order to survive fierce
competition (e.g., Henderson and Cockburn, 1994).
Japanese auto sector is one of the industries where inter-firm cooperation in productdevelopment processes is playing a key role. The typical passenger car contains 20,000 to 30,000
components. As much as 70% of these components come from outside suppliers. These outside
suppliers are often involved in design as well as manufacturing, and may account for 50% or more ofengineering costs.
1Yoshinori Konno

In addition, a car is a typical product for integral architecture. Functional and structuralinterdependency is complicated between components comprising a car. Interfaces between thesecomponents are not standardized. It is difficult to make any excellent car without knowledge about
the entire car or individual components (Takeishi, 2003). In the Japanese auto industry, automakers
accumulate knowledge about the whole of vehicles while automotive suppliers store knowledge
about individual components. When new technologies or new-concept components are developed,
automakers and suppliers must make joint development arrangements in order to integrate theirknowledge.
In this respect, a great number of studies at home and abroad since the mid-1980s have drawn aconclusion (e.g., Womack et al., 1990; Clark and Fujimoto, 1991; Cusumano and Takeishi, 1991;
Nishiguchi, 1994; Dyer, 1996; Sako, 1996; Sako and Helper, 1998; Wasti and Liker, 1999):“Japanese automakers have maintained their respective long-term cooperative business relations withlimited number of suppliers and are conducting close information exchanges and coordination withthem, based on their strong mutual trust. Very close cooperation between automakers and theirrespective suppliers have covered even product development processes. This is a source of theJapanese auto industry’s international competitiveness.” As vehicle development lead times haveshortened, research and development cooperation between automakers and their respective suppliers
have reportedly been enhanced further (e.g., Konno, 2002).
However, vehicle development projects are not limited to improvements of existing
technologies. They may include development of advanced technologies regarding new-concept
automotive components and new elemental technologies (e.g., materials). This kind of technology
development is called “advanced research and development.” Advanced research and development of
new technologies may precede or be integrated with new vehicle development projects.
Many studies have mentioned that automakers and their respective suppliers cooperate closely
even in such advanced research and development activities (e.g., Ueda, 1995). But most of earlier
studies analyzed individual product development projects respectively and discussed factors affecting
such as development lead times, development man-hours and product quality, therefore failing tocover cooperation between automakers and their respective suppliers in the development of advanced
technologies. Some studies that covered such cooperation were limited to qualitative analyses,lacking quantitative analyses.
This paper is designed to analyze the realities of recent cooperation between Japanese
automakers and their respective suppliers in the development of advanced technologies as2

Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

quantitatively as possible. A conclusion of this paper is that as cooperation between automakers andtheir respective suppliers has been expanding into the development of advanced technologies,
suppliers that have the capability to participate in such development activities have had closer
relations with automakers than others.
Section 2 analyzes data concerning automakers’ joint patent applications in order to specify
cooperation in the development of advanced technologies. Section 3 analyzes the relationshipbetween such cooperation and business relations, based on questionnaire survey data. Section 4
covers the conclusion and discussions.

2. Analysis of Automakers’ Joint Patent Applications
This section looks into cooperation between automakers and their respective suppliers in thedevelopment of advanced technologies through an analysis of automakers’ joint patent applications.

2.1. Source
Subjected to the analysis were nine Japanese automakers’ patent applications that were filed
over 12 years between 1993 and 2004 and released on the official patent gazette issued by Japan’s
Patent Office. The nine automakers are Toyota Motor Corp., Nissan Motor Co., Honda Motor Co.,
Mitsubishi Motors Corp., Mazda Motor Corp., Suzuki Motor Corp., Daihatsu Motor Co., Fuji Heavy
Industries Ltd. and Isuzu Motors Ltd. Specifically, applicants (multiple applicants for one patentapplication are all counted as applicants), publication numbers, application dates, names,
international patent classification (first invention information subclasses), inventors and other patentapplication data were entered into spreadsheet software. Then, we conducted a patent map analysis of
joint patents, or patents for which applications were filed jointly by automakers and their suppliers.
The joint patent applications are those for which both automakers and their respective suppliers
are applicants in connection with the development of advanced technologies that can be identified as
novel or inventive. The joint patents thus represent inventions to which both automakers and their
suppliers have contributed 1. Therefore, the joint patents may be utilized as an indicator of successful

1

Inventions subjected to patent applications may be published in the official gazette one year and ahalf after these applications are filed with the Patent Office. Applications may enter an examination
process only if applicants pay examination fees and request examination. If novelty or inventivenessis identified in inventions, patents may be awarded.
This means that patents are awarded for only a minor portion of patent applications. Many
3

Yoshinori Konno

cooperation in the development of advanced technologies 2.

2.2. Overview of Automakers’ Patent ApplicationsFirst, we would like to review the overall trend. Figure 1 indicates the total number of patentapplications for the nine automakers and each of them between 1993 and 2004.

Figure 1: Patent Applications

16000

6000

14000
12000
4000
10000
8000

3000

6000

2000

4000
1000
2000
0

0
93

95

97

99

01

number of patent applications(total of nine automakers)

number of patent applications(each automaker)

5000

Total
ToyotaNissanHonda
Mitsubishi
MatsudaSuzukiDaihatsu
Fiji
Isuzu

03

Year

The figure shows that the nine automakers’ total patent applications began to increase aroundapplications are filed for defensive purposes. Manufacturing know-how and other technologies that
may be difficult to imitate for rivals are not necessarily subjected to patent applications. There arethus various constraints on patent data. However, no alternative objective indicators exist forsuccessful advanced technology development. As far as patent applications are filed at some cost,
technologies subjected to patent applications should have been screened by applicants and can be
expected to feature some novelty or inventiveness. In this sense, patent data may be allowed to be
utilized as an indicator of successful advanced technology development.
2
Multiple applicants for a single patent may not necessarily have made the same contributions to arelevant invention. The multiple applicants may assess their respective contributions to an invention
subject to their patent application and agree on how to share gains from the patent. Such agreement
may not be reflected in patent applications, but all applicants should have made some contributions to
the invention. In this sense, there may be no problem with utilization of joint patent applications as
an indicator of cooperation in the development of advanced technologies.
4

Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

2002 and scored a sharp increase in 2004. Breaking down these patent applications by automaker, wefind that Toyota, Nissan and Honda account for a dominant share of the total. Roughly, the threefirms accounted for 60-70% of the nine’s total patent applications. In 2004, the three’s share rose to80%. Patent applications from the others have been falling or leveling off. Effectively, Toyota, Nissan
and Honda have been leading the development of advanced technologies in the Japanese auto
industry.

2.3. Overview of Automakers’ Joint Patent Applications
Next, we would like to review the overall trend of patent applications filed jointly byautomakers and their respective suppliers. Figure 2 indicates the total number of joint patentapplications for the nine automakers and their share of their total patent applications between 1993
and 2004.

Figure 2: Joint Patent Applications and Their Share of Total

20.0

3000

18.0
2500

16.0

number

12.0
10.0

1500

share(%)

14.0

2000

8.0
1000

6.0
4.0

500

2.0
0

number of joint
patent applications
share of joint
patent applications

0.0
93

95

97

99

01

03

Year

Figure 2 shows that the total number of joint patent applications and their share of total patentapplications have continued a rough upward trend, although some fluctuations were seen for some5

Yoshinori Konno

years. Particularly, joint patent applications have increased apparently since the nine’s total patentapplications began to rise in 2002. Joint patent applications’ share of the total also indicates a roughupward trend.
Figure 3 indicates the number of joint patent applications and their share of the total for thethree largest Japanese automakers – Toyota, Nissan and Honda – between 1993 and 2004. This figure
shows that Toyota features a greater number of joint patent applications and a higher share of thetotal patent applications than at the other two 3.

Figure 3: Joint Patent Applications and Their Share of Total for Each Automakernumber of joint patent applications

35.0
2500
30.0
2000
25.0
1500

20.0
15.0

1000
10.0
500
5.0
0

0.0
93

95

97

99

01

share of joint patent applocations(%)

40.0

3000

other's total
numberHonda's number
Nissan's number
Toyota's number
other's total share
Honda's share
Nissan's share
Toyota's share

03

Year

For each of the three largest automakers, Figure 4 indicates the number and percentage share ofpatent applications that it filed jointly with two or more suppliers. A patent application filed by threeor more companies may represent not only dyad cooperation between an automaker and one of its
suppliers but also horizontal cooperation between suppliers. The number and percentage share of3

Figures 3 and 4 don’t make adjustments for Toyota’s joint patent applications with Toyota Central
R&D Labs. Inc. and Honda’s joint applications with Honda R&D Co., although these R&D firms
have personnel exchanges with their respective parent companies and are positioned as consolidated
subsidiaries forming component of their respective parents’ R&D divisions. This means there is someupward bias for these companies. Even if such adjustments are made, however, a conclusion here
may remain unchanged.
6Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

such patent applications can be utilized as an indicator of advanced R&D cooperation.

400

8.0

350

7.0

300

6.0

250

5.0

200

4.0

150

3.0

100

2.0

50

1.0

0

0.0

share of joint patent applications
involving three or more applicatns (％)

number of joint patent applications
involving three or more applicants

Figure 4: Joint Patent Applications Involving 3 or More Applicants for Each Automakerother's total number
Honda's number

Nissan's number
Toyota's number

other's total share

Honda's share
Nissan's share

93

95

97

99

01

03

Toyota's share

Year

This figure shows that Toyota features a far higher number and percentage share than the others
for joint patent applications involving three or more applicants. Joint patent applications for Toyota
mainly involve Toyota-affiliated suppliers including Toyota Central R&D Labs. Inc., Denso Corp.
and Aisin Seiki Co. However, Toyota’s R&D cooperation partners have not been limited to its
affiliates. For example, Toyota filed a joint patent application for some telecommunications
technologies in 1999 with five others – Aisin AW Co., Denso, Fujitsu Ten Ltd., Pioneer Corp. andMatsushita Electric Industrial Co. We have found many large-scale R&D projects that Toyota hasarranged with a wider range of suppliers.
Japanese automakers have thus expanded cooperation with their respective suppliers into thedevelopment of advanced technologies. Amid such general trend, Toyota has also made aggressive
efforts to coordinate the joint-style advanced technology development projects which include two or
more suppliers (which include horizontal cooperation between suppliers). In terms of quantitative
achievements through such cooperation, Toyota has gone far ahead of other Japanese automakers.

7

Yoshinori Konno

3. Analyzing Questionnaire Survey of Supplier
As indicated in the previous section, automakers’ cooperation with their respective suppliers in
the development of advanced technologies has been expanding in the Japanese auto industry. How
have business relations between automakers and their respective suppliers changed in line with such
expanding cooperation?
In a bid to look into such changes, we would like to analyze a questionnaire survey of first-tierautomotive suppliers, that was conducted in November 2003 jointly with Mr. Takahiro Fujimoto, aprofessor of Tokyo University, and Mr. Ku Seunghwan, then assistant professor at Kyoto Sangyo
University .

3.1. Survey Data Sources and Outline
In the above questionnaire survey, we sent questionnaires to 340 first-tier automotive suppliers
among the members of the Japan Auto Components Industries Association. Of them, 150 firms sent
back responses, resulting in about 44.1% response rate. In the questionnaire, the suppliers were first
asked to select its most important product (component). Then they were asked about its business
relations with a main customer automaker regarding the most important product (component).
Note that the components chosen as the most important spread over 7 categories; sub-assemblycomponents, electronic / electrical components, machining processing components, press
components, plastic components, metals (molding / casting) components, and others. Of the total,
subassembly components accounted for 19%, press components for 17%, and electronic andelectrical components for 14%. The main customer automaker mentioned by the questionnaire
respondents were Toyota 40%, Nissan 15%, Honda 14%, Mitsubishi 7%, Matsuda 7%. These
percentages roughly represent their respective domestic auto production shares.
One question in the survey asked a supplier about the number of competing suppliers to the
respondent’s main customer automaker. Those citing the number as two to four including the
respondent itself accounted for 70% of the total respondents. And 27% of the respondents answeredthat the number has increased in the last four years (but 62% saw no change). On the number ofJapanese automakers they are dealing with as customers, responses ranged from one to 11 firms. And
24% of the respondents said that the number has increased over the last four years (but 68% saw nochange). Thus, these results show that both automakers and suppliers have remained unchanged orincreased slightly their customer / supplier bases.
8Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

Figure 5: Outline of Components Transactions (1)(1)Most important component of the respondents
sub-assemblycomponent（n=150）machining processing
component

19.3

14.0

electronic/electrical component

12.0

plastic
component
17.3

12.7

press component

no answerothers
4.7

18.0

2.0

metals component(2)Main customer automaker (“A” automaker) of the respondents
Toyota（n=150）40.0

Nissan

Honda

15.3

14.0
Mitsubishi

Mazda

6.7

SuzukiNissanDiesel 0.7

Fuji

7.3 2.7 4.0 6.0

Daihatsu 0.7

Isuzu

no answer
0.7
Hino
2.0

Of the suppliers, 58% said that they “undertook more than half of the development workload
themselves. Asked on the change in the percentage over the past four years, 56% answered that they
saw an upward trend. These results show that many suppliers are responsible for quite a high ratio of
the component development.
Of suppliers’ transactions with automakers, 69% belonged to ‘the approved drawing
components 4’, 17% belonged to ‘the assigned drawing components 5’ and 10% belonged to ‘thedetailed-controlled drawing components 6’. ‘Supplier proprietary components’ were subjected to 3%of these transactions. These data indicate that suppliers participated in detailed engineering as part of4

Under ‘the approved drawing components’ practice, a supplier conducts detailed engineering basedon rather rough specifications provided by the customer automaker. After the automaker approves thedrawings, the supplier owns the final drawings, and produces components based on it for delivery to
the automaker. See Asanuma(1989) and Fujimoto(1999).
5
Under ‘the assigned drawing components’ practice, a supplier conducts detailed engineering basedon the customer automaker’s basic drawing. The automaker owns the final drawing. This type ofcomponents is positioned between the approved drawing components and the detailed-controlled
drawing components. See Fujimoto(1999).
6
Under ‘the detailed-controlled drawing components’ practice, an automaker undertakes detailed
engineering for a component. And the automaker owns the final drawing and provides a supplier with
it for production. See Asanuma(1989) and Fujimoto(1999).
9

Yoshinori Konno

development of components in more than 86% (combining the approved drawing components andassigned drawing components) of the total transactions.
As for competition, 67% of the responding suppliers said that they were selected by‘development competitions’. Some 23% said they received exclusive orders from automakers. The
remaining 11% cited biddings.
Respondents were also asked to choose the most important capability from five alternatives forwinning competition. The most important capability, selected by 53%, was proposing and developing
new components technologies or new-concept components beyond improvement of existing
technologies. The second most important capability, chosen by 23%, was lowering costs throughmanufacturing process improvements. The third, chosen by 17%, was reducing costs through design
improvements. The fourth, selected by 4%, was developing components in accordance withspecifications given by automakers, and the fifth, chosen by 3%, was guaranteeing quality andjust-in-time delivery.

Figure 6: Outline of Components Transactions (2)(1)Number of competing suppliers including themselves to “A” automaker（n=150）

1

2

7.3

19.3

3
31.3

4

5

6-10

no answer

19.3

6.7

8.7

4.0

others3.3(2)Change in this number over the last 4 years（n=150）-2～ -1

± 0社

4.7

62.0

+1～ 2社23.3

10＋ 3～ 5社
4.0

no answer
6.0

Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry(3)Number of Japanese automakers the respondents are dealing with
7

9

11

1

2

3

4

5

6

8

14.0

15.3

12.0

9.3

7.3

6.0

6.0 4.7 4.7

no answer

10（n=150）
10.7

6.7

3.3

(4)Change in this number over the last 4 years＋3 2.0
-2～-1

±0

+1

68.0

（n=150）＋2

no answer

6.0

6.0

14.7

2.0

＋4～+6 1.3

(5)Amount of development workload that the respondents undertook
40-50%

10-20%
0-10%

30-40%

9.3

1.3
6.0 4.7
4.0（n=150）6.7

20-30%

60-70%
70-80%
9.3

90-100%17.3

14.2

50-60%

13.3

no answer
6.780-90%(6)Change in this ratio over the last 4 years

Increase

Decrease
1 2（n=150）2.7(no chang)
3

4

5

36.3

42.3

14.1

2.7

no answer

3.6
2.0

11

AverageYoshinori Konno(7)Type of component transaction
assigned drawing component（n=150）

10.0

approved drawing component

16.7

no answer

69.3

detailed-controlled
drawing component

2.7 1.3

supplier proprietary component(8)Type of component transaction

bidding(n=150)development competition

exclusive orders

67.3
67.4

21.3
22.0

10.7
9.9

no answer 0.7(9)Most important capability

reducing costs throughdesign improvements
developing components in accordancewith specifications given by automakers

lowering costs throughmanufacturing process improvements(n=150)

22.7
23.4

2.7
2.8

17.3
17.7

guaranteeing quality and just-in-time delivery.

4.0
4.3

noその他
answer
0.7

52.7
51.1

proposing and developing new components technologies
or new-concept components beyond improvement ofexisting technologies

Regarding the relationship with a main customer automaker, 63% of the responding suppliers
chose “started to participate in development activities from a much earlier stage than before,” 43%chose “we have increased the number of on-site guest engineers who work at the main customer
automaker”, 62% chose “face-to-face communication during the development process increased”,
12Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

and 75% chose “there was more frequent overall communication (includes all forms ofcommunication, emails, phone calls, and face-to-face)”, respectively. These results suggest that therelationship between suppliers and their main customer automakers is becoming tighter and closer
with regards to R&D activities.
In the recent Japanese auto industry, as indicated above, major suppliers have not only increased
number of their customer automakers but also deepened relations with their main customer
automakers. Meanwhile, in order to survive fierce competition, suppliers are required to have acapability to develop cutting-edge new components or technologies beyond improvements of existing
technologies.

Figure 7: Outline of Components Transactions (3)(10)Change in relationship with “A” automaker over the last 4 years,

+ve

-Ve
12

a. Timing of participation has
become much earlier(no change)

3

0.0
0.7

b. Increased number ofon-site guest engineers

4.7
0.7

c. Increased face-to-facecommunication

3.3
1.3

d. More frequent overall
communication

1.3
1.3

34.7

55.7

64.7

9.3 1.3

3.7

63.3

9.3 1.3

3.5

42.7

6.01.3

3.6

61.3

10.7 1.3

3.8

75.3

54.0

33.3

22.7

Percentageof 4 + 5

5

50.7

32.0

Average4（n=150）3.2. Stages for R&D Cooperation
Next, we would like to look into the realities of cooperation in the development of advanced
technologies.
Responses to “Question 1” on stages for R&D cooperation with a major customer automaker orgaining help from it are compiled in Figure 7. Of the total responding suppliers, 23% were for “1.
Stages for R&D into new-concept components or modules, or new elemental technologies (such as
13

Yoshinori Konno

new materials), including pilot studies on technologies that are not planned for specific models;”
43% for “2. Stages for R&D of components for specific models, including new technologies orconcepts beyond improvements of existing technologies or products;” 28% for “3. Stages for R&D ofcomponents based on improvements of existing products;” 3% for “4. No help from the main
customer automaker or no participation in the automaker’s R&D projects;” and 1% for “5. Others.”
Based on discussions in Section 1, the advanced technology development cooperation is identified
for the first and second cases. Asked on any change in the stages for cooperation over the past four
years, 63% said that they began to cooperate with the main customer automakers in earlier R&D
stages than in the past.
Consequently, a majority of suppliers are now cooperating with their respective customer
automakers even in the development of advanced technologies, and the timing that they began tocooperate have become earlier than before.

Figure 8: Stages for R&D Cooperation(1)Timing of participation in joint R&D project / gaining technical cooperation
with “A” automaker

1. Stages for R&D into new-concept Components
or modules, or new elemental technologies（n=150）23.3

3. Stages for R&D of components based on
improvements of existing technologies

42.7

2. Stages for R&D of components for specific Models,
including new technologies or concepts

5. Others 0.7

28.0

4.0

no answer
1.3

4. No help from the main customer automakeror no participation in the automaker’s R&D projects(2)Change in this ratio over the last 4 years
later

earlier Average(no change)12（n=150）

2.7

3

4

5

28.7

52.7

10.0

0.7

14

5.2

3.7

Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

3.3. R&D Cooperation and Inter-company Relations
Next, we used the questionnaire survey data to consider any difference between suppliers thatcooperate and do not cooperate with the main customer automakers in the development of advanced
technologies.
As discussed earlier, relations between automakers and their respective suppliers are dominantly
based on ‘the approved drawing components’ practice. Therefore, no significant difference was seen
between various components’ drawing type. Classification by the components’ drawing practice may
be too rough to be useful.

Figure 9: Advanced technology R&D Cooperation and Business Relations(1)Development workload portion of the respondent with “A” automakerParticipation in the advanced
technology development

%
0

10

20

30

40

50

60

70

90

80

100
“Yes”
Average“No”
Average

46.8％

65.3％

（n=138） a. Development workload portion of the respondent

3.3

3.8

（n=147） b. Timing of participation has become much earlier

3.5

3.8

（n=147） c. Increased number of on-site guest engineers

3.4

3.7

（n=146） d. Increased face-to-face communication

3.6

3.9

3.2

3.6

（n=138）(2)The change in the relation over the last 4 years(no change)

-Ve
1

2

3

（n=147） e. More frequent overall communication

+Ve
4

5

Suppliers’ average workload portion of their joint R&D operations with their main customer
automakers was significantly higher (the significance level at 1% in t-test) for suppliers cooperatingwith automakers in advanced technology development than for those keeping away from suchcooperation. On any change in such workload portion over the past four years, the former (suppliers
cooperating with automakers in advanced technology R&D operations) pointed to a more significant
expansion (1%) than the latter (those keeping away from such cooperation). As for relations withmain customer automakers, the former feature cooperation in earlier R&D stages (1%) than the latter,15

Yoshinori Konno

a faster increase (5%) in face-to-face communications, a faster increase (5%) in overall
communications, and a greater expansion (1%) in on-site guest engineers stationed at automakers,
respectively. These data suggest that suppliers cooperating with automakers in advanced technology
R&D operations have closer relations with automakers than those keeping away from suchcooperation.

3.4. Suppliers’ Capabilities and Cooperation with Automakers in Advanced technology
Development
Next, we would like to examine the relationship between suppliers’ capabilities and theircooperation with automakers in advanced technology development activities.
Based on the resources-based view of the firm, the core elements of resources and capabilities
that define corporate competitive advantage are knowledge and know-how accumulated in thecompanies (e.g., Teece et al., 1997; Barney, 1997). This may mean that the higher the knowledge andknow-how accumulated in a supplier are, the more probable that supplier is to be allowed to take partin advanced technology development. Therefore, the following working hypothesis is led:
(Working Hypothesis) The higher the knowledge and know-how accumulated in a supplier are,the more probable that supplier is to be allowed to take part in advanced technology
development.
We have utilized the above-mentioned supplier questionnaire survey data for the verification. As
incomplete responses were excluded from the data, the number of samples or responding suppliers
for this analysis came to 145.
As an indicator of advanced technology development cooperation as an explained variable of
the working hypothesis, we have made up a dichotomous variable – “1” for the first and second
responses to “Question 1” in Section 3.2 and “0” for the third and fourth responses 7. One respondent
chose the fifth alternative (“Others”) and has been excluded from the samples because no details
have been explained.

7

My hypothesis is that the difference between the first and second responses, or whether an
automaker cooperates with its suppliers in advanced development of a component or a technology
separately from development of a specific product model or in the development of a specific productmodel including a component or a technology does not necessarily reflect capability gaps between
suppliers, because the difference may depend primarily on characteristics of components or projects,
or on whether the component or the technology is the core system of the specific product model,
whether the development is accompanied by changes in materials and whether an assembly ofcomponents changes dramatically (whether a major shift to a module or a system is planned).
16

Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

As for suppliers’ knowledge levels as the explaining variable, component-specific knowledge isseparated from architectural knowledge, based on Takeishi (2003) 8. As control variables, we haveused “the technology change” for controlling changes in relevant component technologies, “theexternal interdependency” for controlling the external architecture characteristics of relevant
components and “the internal interdependency” for controlling the internal architecture
characteristics of the components, based on earlier studies such as Takeishi (2003), Nobeoka (1999)
and Han (2002). For details including original questions that constitute variables, see Table 1.
The logit analysis has been used for the verification of the hypothesis since the explained
variable is a dichotomous variable. Table 2 indicates averages of major variables, standard deviations
and the correlation matrix. Table 3 shows the results of the logit analysis.
First, Model 1 of Table 3 indicates that suppliers’ component-specific knowledge has a positiveeffect on their cooperation with automakers in advanced technology development. The effect is at a
10% significant level. This means that the working hypothesis has been supported in regard tocomponent-specific knowledge. Second, the model indicates that component-specific knowledge ismore important than architectural knowledge for suppliers to be permitted to cooperate with
automakers in advanced technology development. Architectural knowledge is thus insignificant.
Third, the model also indicates that the technology change as a control variable has a positive effectat a 1% significant level and the external interdependency a positive effect at a 5% significant level.
These indications mean that the faster the technology change is and the more interdependent thecomponents are to others, the higher the probability is for suppliers to be permitted to cooperate with
automakers from the advanced technology development stage. This finding is an interesting theme
for future study.
These results thus suggests that suppliers that are identified as having relatively higher-levelcomponent-specific knowledge and the capability to develop advanced technologies or newcomponents beyond improvements of existing technologies are more probable than other suppliers tohave cooperated with automakers from the advanced technology development stage and haveeventually developed closer business relations with automakers.

8

Component-specific knowledge is the knowledge about performances, costs and production
processes for specific components. Architectural knowledge is the knowledge about coordination ofcomponents that are structurally and functionally related to each other (Takeisihi, 2003).
17

Yoshinori Konno

Table 1: Explanations on Variables
Variable

Specification

Participation in theadvanced technology
development

Component-specificknowledge

Note
Question: In what stage of components R&D operations at the major customer automaker do you
participate or gain help from the customer? (Choose one alternative)
1. Stages for R&D into new-concept components or modules, or new elemental technologies (such as new
The dichotomous variable is set at "1" materials), including pilot studies on technologies that are not planned for specific models
for Alternative 1 or 2 of the five listed 2. Stages for R&D of components for specific models, including new technologies or concepts beyondon the right side and at "0" forimprovements of existing products.
Alternative 3 or 4.
3. Stages for R&D of components based on improvements of existing products.
4. No help from the main customer automaker or no participation in the automaker’s R&D projects
5. Others (Specifically: )Question: What is your estimated level of knowledge about the following points compared with levels forautomakers? (A five-point Likert scale for each question)
Average score of responses to 10 right a. Functional design b. Structural design c. Material design d. Durability design
questionse. Core technology f. Manufacturing process g. Quality control h. Manufacturing cost i. Material cost j.
Components cost

Architectural knowledge

Average score of responses to 8 rightquestions

Question: What is your estimated level of knowledge about the following points compared with levels forautomakers?
a. Final customers’ needs and preferences regarding Component X (main component)b. Automakers’ manufacturing processes (particularly, availability for assembling)c. Functional coordination with other components
d. Structural coordination with other components
Question: What is your estimated level of knowledge compared with levels for automakers about thefollowing points regarding “other components” linked closely to Component X?
a. Knowledge about engineeringb. Knowledge about productionc. Knowledge about evaluationd. Knowledge about costs

Technology change

Score of response to right question

Question: How do you evaluate the following item in comparison with other components in general?
a. Technological changes are fast

External
interdependency

Total of the following scores of
responses to right questions:
External interdependency = -a-bc+d-e+f

Question: How do you evaluate the following items in comparison with other components in general?
a. External interfaces are standardized within the company.
b. External interfaces are standardized within the industry (adopted at two or more companies).
c. Component X functions independently (can be designed without considerations to functions of othercomponents)d. Component X functions multi-dimensionally.
e. Component X is structurally independent (can be designed without considerations to structures ofother components).
f. Component X is structurally complex.

Internal
interdependency

Total of the following scores of
responses to right questions:Internal interdependency = g+hToyota dummy

A dummy variable set at 1 for Response Question: What is you main customer automaker? (Choose one)
1 of responses to right questions and 0 1. Toyota 2. Nissan 3. Honda 4. Mitsubishi 5. Mazda 6. Suzuki 7. Daihatsu
8. Fuji 9. Isuzu 10. Hino 11. Nissan Diesel 12. Others
for any other response

Question: How do you evaluate the following items in comparison with other components in general?
g. If a subcomponent design is modified, most other subcomponent designs must be modified.
h. If a mix of materials is modified even slightly for Component X, the production method and production
process conditions (pressure, temperature, timing, time, procedures, etc.) must be modified considerably.

Table 2: Descriptive Statistics and Correlation Matrix of Major Variables

Variable
1 Participation in the advanced technology development
2 Component-specific knowledge
3 Architectural knowledge
4 Technology change
5 External interdependency
6 Internal interdependency
7 Toyota dummy

AV
0.67
3.80
2.97
3.43
-4.57
6.77
0.39

SD
0.47
0.61
0.67
0.79
3.21
1.52
0.49

If the absolute value of a correlation coefficient≧0.22 then 1% significant， ≧0.18 then 5% significant

18

1
1.00
0.23
0.06
0.28
0.24
0.02
0.15

2

3

4

5

6

7

1.00
0.22
0.14
0.01
0.10
0.01

1.00
0.07
-0.11
0.12
-0.11

1.00
0.18
0.06
-0.19

1.00
0.04
0.03

1.00
-0.06

1.00

Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

Table 3: Logit Analysis Results
Modelexplained variable
Component-specific knowledge
Architectural knowledge
Technology change
External interdependency
Internal interdependency
Toyota dummy
定数項-2logL
Negelkerke R2
sample size
A yellow cell means p<0.10

1
2Participation in the advanced technology development
β
S.E.
p
β
S.E.
p
0.52
0.30
0.08
0.49
0.30
0.10
0.13
0.27
0.63
0.19
0.28
0.49
0.65
0.26
0.01
0.80
0.27
0.00
0.16
0.07
0.02
0.16
0.07
0.02
-0.05
0.13
0.71
-0.03
0.13
0.81
1.02
0.43
0.02
-2.76
1.55
0.08
-3.81
1.65
0.02
162.9
156.9
0.19
0.24
145
145

3.5. Progressive practice of Toyota’s Suppliers
The Section 2 analysis found that Toyota has gone ahead of other Japanese automakers incooperation with suppliers in the development of advanced technologies. Therefore, this subsection
looks into differences between suppliers whose main customer automaker is Toyota (Toyota’s
suppliers) and the other suppliers.
Figure 9 shows a comparison between responses by Toyota’s suppliers and the others to“Question 1” in Section 3.2. Of Toyota’s suppliers, those in the first category accounted for morethan 35%. This percentage more than doubled the level for the other suppliers. Of Toyota’s suppliers,
those in the second category also accounted for more than 35%. This percentage is slightly lower
than for the other suppliers, however, a combination of the first and second categories for Toyota’s
suppliers was 16.2 percentage points larger than for the other suppliers. The difference between
Toyota’s suppliers and the others was at a 1% significant level.
Model 2, in which a Toyota dummy is added to Model 1 of Table 3, indicated Toyota dummy’s
positive effect at a 5% significant level even after all the other variables were controlled. Model 2
also indicated that the addition of Toyota dummy improved the regression’s explanation power. In
short, Toyota’s suppliers are more probable than the others to participate in the main customer’s
advanced technology development projects. The probability gap was calculated about 36 percentage
points.
19

Yoshinori Konno

In this way, Toyota has joint R&D operations with major suppliers from the advanced
technology development stage more positively than other automakers.

Figure 10: Differences between Toyota’s Suppliers and the Others

1. Stages for R&D into new-concept
Components or modules, or new
elemental technologies
2. Stages for R&D of components for
specific Models, including newtechnologies or concepts

3. Stages for R&D of components
based on improvements of existing
technologies
Toyota's suppliers
the other suppliers

4. No help from the main customer
automaker or no participation in theautomaker’s R&D projects
0

10

20

30

40

50

％

4. Conclusion and Discussions
4.1. Cooperation in Advanced technology Development and Inter-company Relations
The above analyses indicated that Japanese automakers and their respective suppliers have
expanded their cooperation into the development of advanced technologies over the past decade.
In the Japanese automotive market, the automakers need to realize enough functionality andproduct quality at low price. Furthermore, for example, the automakers need to realize not only thebasic ‘drive’, ‘turn’, ‘stop’, and ‘gasoline mileage’ functions, but also ‘user-friendliness’, ‘hugebaggage area’, ‘airbags’, ‘active safety’ and ‘CO2/NOX reduction’ features. Thus today, automotive
technology development races have grown fiercer.
For most of automotive components, technological innovations are rapid, including
development and utilization of new materials (particularly, a shift from metals to plastics) and20

Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

advanced IT technologies, miniaturization and lightening. In addition, a shift has made fast progress
to modules over the recent years. New design concepts for automotive components have been
proposed one after another and some have been put into practice.
Under these circumstances, automakers have been prompted to cooperate with their suppliers in
the development of advanced technologies excluding cores (e.g., Konno and Okuda, 2005). Such
conditions have apparently exerted a great impact on business relations between automakers and their
suppliers.
The advanced technology development projects are more difficult to manage than projects that
only involve making improvements to existing technologies. The former projects are not free from ahigh level of uncertainty, so the parties find it difficult to precisely judge in advance what each ofthem should do to what extent, what level of resources (human, materials, financial or knowledge)
should be provided and the probability of success.
Additionally, with the advanced technology development projects, new and innovativetechnology is only actualized when both parties provide their latest technology and know-how toeach other, engage in extended information exchange and repeat trial and error processes. This kindof knowledge transfer, fusion and creation process is bilateral, highly sophisticated and invisible, it istherefore difficult to manage. In addition, even if an automaker and a supplier succeeded ingenerating new innovative technologies, it is difficult to measure how much contribution has been
made by which party, or how much of the resulting profits should be attributed to which party.
Furthermore, in case either of them disclose proprietary information to third parties, therepercussions are tremendous. Even if parties closed NDA (Non-Disclosure Agreement), it is difficult
to prove illegal activity / or wrong doing on an objective basis.
According to the above discussion, we can conclude that; because the joint-style advanced
technology development activities are difficult to manage only by way of contracts, automakers tend
to collaborate with the truly core suppliers. Core suppliers in this sense refer to suppliers with whom
the automaker has had a long-term, cooperative and trustful relationship, and moreover suppliers who
have high R&D capabilities. Consequently, though the number of core suppliers that can take part inautomakers’ advanced technology development are limited, the relationships between automakers
and the core suppliers should become closer (Konno 2002).

4.2. The Future of the Supplier System
In the past mass media, a lot of experts eagerly reported the “collapse of the keiretsu system in21Yoshinori Konno

the Japanese automotive industry.” However, our findings indicate that such view is somewhat
superficial.
Business relations between Japanese automakers and their respective suppliers are expected to
grow more open (the transaction base in the supplier system is expected to be more and morediversified) in the future. As far as we know from interviews and surveys, Japanese automakers
started to proactively encourage their respective suppliers to expand the transaction base after 2000.
The first reason for this is that auto production can no longer be expected to continue with fast
growth. The second reason is that Nissan has reformed its keiretsu-based purchasing strategy tosuccessfully reduce purchasing costs under its ‘Revival Plan’. Also, technological divisions ofautomakers once tended to be a rather passive opinion that “if keiretsu suppliers are permitted todiversify their customer base, it will lead to leakage of our technology.” However recently, theprevailing opinion is changing; “Even new technology may be easily imitated once it is launched in
the market. If this is the case, proactively selling our co-developed technologies from an early stage
and making that technology the de facto standard, will lead to cost reduction through mass
production effects. This may be desirable for both automakers and their suppliers 9.” Such opinion
also seems to be assisting the movement toward open business relations.
However, such movement does not necessarily lessen the importance of long- term, cooperativeand close relationships between automakers and their respective suppliers. As noted by Konno (2004),
the movement toward opening business relations may be limited to relations for improvements ofexisting technologies. Relations for the development of advanced technologies (i.e. new-concept
automotive components and new elemental technologies) may grow more closed, as indicated in thispaper.
For this reason, now core suppliers in the Japanese automotive industry will be divided into twogroups – a limited number of real core suppliers that can produce new innovative technologies alongwith automakers, and the rest. Suppliers’ responses to such changes may be important to win
competition.

9

Source: my interview with a purchasing manager at a Japanese automaker (on May 30, 2002), etc.
22

Enhancement of the advanced R&D cooperation between automakers and suppliers in the Japanese automobile industry

Figure 11: Division of Core Automotive Suppliers

Old second place
suppliers

Third place suppliers
Second place
suppliersCoresuppliers

Semi coresuppliers

New core
suppliers4.3. Progressive practice of Toyota’s Suppliers and Future Problems
Even amid such general trend, our findings indicate that Toyota has gone ahead of otherautomakers. Toyota has cooperated with major suppliers from the advanced technology development
stage more positively than other automakers. Its quantitative achievements in this regard are far morethan those at other automakers. Toyota has also proactively coordinated the joint-style advanced
technology development projects which include two or more suppliers (which include horizontal
cooperation between suppliers).
As automotive technologies have been advancing rapidly, Toyota’s excellent production andproduct development operations cannot guarantee its future competitiveness. If failing to develop
advanced technologies, even Toyota could be outperformed by others. Given Toyota’s recent success,it seems that the network that Toyota has built for cooperation with suppliers in the development ofadvanced technologies might have contributed to the firm’s international competitive edge.
The progressiveness of the network that Toyota has built for cooperation with suppliers in thedevelopment of advanced technologies indicates the firm’s excellent management of cooperation.
This paper doesn’t address details of automakers’ management of cooperation with suppliers in the23

Yoshinori Konno

development of advanced technologies. However, this is a very interesting theme.
In this respect, an engineer who had served as general manager for quality control at Toyota
said: “Toyota has a strong philosophy that quality and cost problems should be solved from the true
source. And, suppliers are partners. If quality and cost problems cannot be solved without going backto the stage for development of advanced components technologies, we may never resist cooperation
with leading suppliers 10.” Probably, such philosophy, organizational cultures or the relationship oftrust between companies might have supported cooperation in the development of advanced
technologies.
Anyway, studies have not been accumulated in this area. In the future, multi-faceted surveys
should be accumulated to look into the management of cooperation in advanced technology
development.

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