Close and enduring relationships between big business and smaller companies help keep Japanese industry productive and innovative.
A typical automobile horn produced in Miyamoto Electric Horn Co.'s graying, multistoried Tokyo factory seven years ago contained 50 parts. This year's new model contains 20. Miyamoto employees say that with help from Nissan Motor Co., which buys everything Miyamoto makes, their company's productivity has risen an average of 10% each year -- growth that is roughly typical of the Japanese auto industry but more than three times the long-term average in America's auto business.
Deep ties between Nissan and Miyamoto illustrate a key fact of the Japanese economy: Close, stable, multilayered partnerships between big business and many smaller companies keep Japanese industry productive and -- in thousands of small ways -- innovative. The partnerships unite the vast resources of big business with the concern for detail of smaller businesses, linking the companies far more intimately than is typical in most American subcontracting relationships.
Nissan entrusts the design and manufacture of 98% of its horns to Miyamoto, which makes nearly 2 million a year in its 19 000-square-foot Tokyo factory. And Nissan pledges to buy most of its horns from Miyamoto as long as Miyamoto does excellent work.
Freed from fears that they will lose their contract in annual competitive bidding, Miyamoto's three horn engineers concentrate on long-term projects for improving horn design fundamentally. Their success in reducing the number of parts over the last seven years demonstrates their ability Neither General Motors Corp. nor Ford Motor Co. has reduced the number of horn parts, 30 and 29, respectively, in more than a decade.
Moreover, the partnership benefits virtually every aspect of Miyamoto's productivity. Because Miyamoto is confident of future orders, it can install expensive new equipment with little risk. Nissan consultants help Miyamoto choose the best machine tools and determine how fast they should run. But Miyamoto's ordinary employees contribute cost-cutting ideas, too, with good reason. They know that managers really care about horns because Nissan encourages Miyamoto to remain highly specialized, producing only a handful of products -- horns, buzzers, and relays -- for Nissan. And Nissan has taught Miyamoto managers special techniques to elicit worker suggestions.
In addition, Miyamoto workers know they will benefit as a group from business success. Nissan makes sure its more efficient subcontractors are paid well enough to pay, in turn, higher wages than inefficient subcontractors -- although never higher wages than at Nissan itself.
Along with curbing production costs, the partnership provides other savings for Nissan. It can trust Miyamoto's inspection of its horns and ask Miyamoto to make daily deliveries directly to Nissan assembly lines. It need not inspect incoming parts or maintain more than two days' worth of inventory.
Miyamoto Electric Horn has been closely tied to Nissan since the 1930s and especially since World War II but it retains an independent identity. Tomio Miyamoto president of the company, claims his company may be the oldest business in the entire Japanese vehicle industry. It was founded in 1872 by his great-great-grandfather to make copper pots and horns for Japan's military, and it entered the vehicle industry in 1882 with horns for horsedrawn Tokyo streetcars Miyamoto regards the company not only as a stronghold of progressive craftsmanship, but also as a protector of the traditional spirit of downtown Tokyo artisans and merchants who served the feudal lords in the old days and yet maintained their own lively culture.
Before World War II, Miyamoto Electric Horn was independent, selling not only to Nissan but to other makers as well. But bombs destroyed its Tokyo factory during the war, killed Tomio Miyamoto's mother, and left the business in shambles. After the war the Miyamotos worked out a deal to manufacture horns for Nissan in make-shift quarters. With the Korean war, for which U.S. forces purchased Japanese vehicles, the company returned to prosperity as a captive supplier to Nissan.
Japan's subcontracting system took its present form in the 1950s and '60s Subcontracting was always a prominent feature of Japanese business because companies wanted a cushion of subcontracted work that they could bring in-house for their own employees during hard times. But as companies grew rapidly, they lacked the capital to produce all the parts they needed, and their dependence on subcontracting increased. (A similar lack of capital has produced a similarly heavy dependence on subcontracting at such medium-size Western auto makers as Chrysler Corp.)
Unlike Western manufacturers, however, the Japanese sought familial relationships with their suppliers that were analogous to -- although not generally as strong as -- their relationships with their employees. Nissan sought mainly specialized subcontractors whose principal business would be to supply Nissan. lt bought stock in most key suppliers. Company officials say they sought -- and still demand -- subcontractors with majime ("steadiness"). The word suggests suppliers committed to their product rather than to profitability. To Miyamoto it means, "We're not filling our pockets with money."
Large companies established forums in which members of their business families shared problems. Nissan organized the Takara-kai (Treasure Society), an association of key auto parts suppliers, to discuss both manufacturing techniques and the Nissan family's needs. Nissan today spends 65% of the money allotted for parts with 110 Treasure Society members and another 30% with the members of another group, the Shoho-kai (Crystal Treasure Society), which represents the large companies that make such technologically sophisticated parts as radios, tires, batteries, and glass.
Treasure and Crystal Treasure companies take responsibility for assuring the quality of the tens of thousands of parts from their own subcontractor-partners. They often supply completed subassemblies, such as seats, when U.S. auto makers would buy bits and pieces to build their own seats. Nissan buys directly from only 460 parts suppliers. By contrast, Ford deals directly with 2,500 important parts suppliers in North America for about the same number of cars.
The partnership doesn't mean Nissan makes life easy for auto suppliers. If subcontractors don't meet Nissan standards, their managers will find Nissan consultants visiting them more frequently than they want. Nissan may even dispatch a manager full-time to help solve persistent problems. If parts must be recalled and replaced after they have been shipped around the world, the supplier must pay the cost of all the labor involved wherever the defective parts are in use.
