Moreover, the partnership doesn't preclude Nissan from buying at least some horns elsewhere; it merely forbids a sudden withdrawal of business that would destroy a hard-working supplier. And on one or two occasions a persistently inadequate supplier has been allowed to go into bankruptcy.
A slightly inefficient subcontractor faces perilous times when demand for an industry's product weakens, especially if it is not a direct supplier of Nissan and amember of a powerful partnership like the Treasure or Crystal Treasure societies. And even with partnerships, companies may consider some jobs they have subcontracted to be possible work for their own employees when sales lag.
Suzuki Bankin (sheet metal) Co., a subcontractor supplying parts of truck bodies and automobile fenders for large truck and auto body subcontractors, for example, has faced a 40% decline in the prices that truck-body makers have paid in the past two years. It has had to launch an aggressive cost-cutting campaign, which has included encouraging the resignations of 10 of its 80 workers.
Suzuki is an active member of the Kowa-kai (Wide Harmony Society) of Press Kogyo Ltd., a truck-body maker that is its largest customer, and whose products wind up in Nissan, Isuzu, and Mitsubishi trucks. Yoshio Suzuki, president, has shown the society, for example, how his company reduced the number of workers from four to two on a particular machine.
But the long-term partnership between Suzuki and Press can't protect Suzuki today. The Japanese truck industry is facing a famine. Truck sales have collapsed over the past two years as the economy has joined the worldwide recession -- not succumbing as profoundly as the U.S. economy, but stagnating nevertheless. In a famine, the weakest households in even the most benevolent clans suffer severely. Such primary truck-part subcontractors as Press have politely asked for a series of drastic price reductions. " Suppose you've got some work that you've been doing for $100. They'll say, 'Please do it for $70,' " Suzuki says. He told the customers that accepting the lower price would be "difficult," but he did it anyway. The alternative was a sharp cut in the amount of work Suzuki would have received. The primary subcontractors could easily have done the work with their own underutilized equipment and personnel.
Thousands of other small subcontractors face similar problems. Multilevel subcontracting is probably more highly developed in Japan than in any other country. Suzuki feels he has a partnership with several tiny workshops to whom he has subcontracted production of brackets and other small items, but he cannot protect them from price cuts that are roughly proportionate to those he himself faces.
Nissan officials say that most Treasure and Ciystal Treasure companies spend about 65% of their revenues on parts and materials. A Japanese government study found that Toyota, whose subcontracting system may be even more highly developed than Nissan's, had 5,437 secondary subcontractors and 41,703 tertiary subcontractors. And Japanese auto men stress that there are even more fourthand fifth-level subcontractors. Because of extensive subcontracting, 46.6% of manufacturing employees in Japan work in companies with fewer than 50 workers, compared with 10.6% in the United States.
The weaknesses in the subcontracting partnership at the secondary and lower levels encourage efficiency. The system can keep enough business flowing to companies that have made major investments to enable them to service their debts. But aggressive price competition among companies like Suzuki's -- which have no advanced technology of their own -- helps bring inflation under control quickly whenever recession hits Japan. Moreover, Hiroya Shirato, an official of the Japan Auto Parts Industries Association, notes that many of the subcontractors who bear the brunt of declines in demand are less specialized than primary subcontractors and can "look for work in the electronics and shipbuilding industries. " Thus extensive use of subcontracting enables Japan to switch people from slow to busy industries without throwing them out of work.
The system is tough on entrepreneurs, whose responsibilities to their business households prevent them from going out of business when times are tough. Although Suzuki is willing to ask a few employees to resign, he refuses to close his company. "If I could quit I'd be happy," says Suzuki, who knows several vehicle parts makers that have gone out of business recently. Each employed about a dozen workers. Each found new jobs for its employees -- mostly in other small factories. "I have 70 employees. There must be 300 people including their families," Suzuki laments.
Even executives at Miyamoto Horn and Nissan are troubled today by the need to maintain jobs for all their people. The Japanese system, even more than America's, makes managers bear the burden of hard times. They are still ultimately responsible for meeting the payroll.
As long as the world economy remains depressed, the very successes of the partnerships in Japan's auto industry will cause trouble for its managers. The managers remain confident that they have the technical ability to continue improving productivity at rates approaching those of the past -- which averaged 8.6% a year from 1970 to 1980, only slightly below the 10% a year claimed by Miyamoto. But the world market can't absorb 8.6% more Japanese cars every year, and the Japanese can't -- or won't -- lay off employees.
Ultimately, despite its success, the auto industry will probably have to cut its hiring sharply, and many people now working in subcontractors' shops will have to be transferred to other industries. Moreover, some changes under way in the partnerships can be interpreted as a weakening. In recent years, many subcontractors have come to feel they would be better off serving more than one customer. Miyamoto, for example, would like to begin supplying Ford and GM. And the current difficulties in Japan's auto industry -- such as pressure in other countries for lower costs -- have made large companies more willing to consider new suppliers.
But Nissan's lifetime employees are unlikely to forget the long-term benefits of stable partnerships with suppliers. And Miyamoto is unlikely to neglect the relationship with Nissan that enabled his company to go literally from ashes to $120 million a year.
The big company-small company partnerships of Japan remain strong and, as business relationships go, stable. The difficulties of the Japanese automobile industry are unlikely to be as profound as those of anyone who must compete with such partnerships, in thc automobile industry and elsewhere.
