One cannot discuss the Japanese automotive industry without mentioning the Car-Part Keiretsu. The Wal Street Journal has an interesting article on the anti-trust investigations and lawsuits regarding these arrangements (“Japan Probe Pops Car-Part Keiretsu“)
First: what’s a keiretsu? A keiretsu is a cluster of interlinked Japanese firms, usually centered on a large corporation that holds equity in the smaller firms.
Japanese auto makers have long seen keiretsu as a way to ensure quality over the long term by building trusted relationships with suppliers. The brand-name companies often own significant stakes in keiretsu parts makers and often enjoy the right of first refusal for newly developed technology. Typically, they work closely from the design stage onward, sharing proprietary technology.
By combining forces and coordinating their actions, these companies are able to reduce costs and risk, better facilitate communication, while building trust and reliability. The Toyota Group is considered to be the largest of the “vertically-integrated” keiretsu groups. There were always discussions that the practice of such a scheme may lead to cartel-like behavior. Recently, due to changes in the Japanese automotive market, several investigations and law suits regarding illegal practices of these Keiretsus:
But there was a lot going on behind the scenes and some of it wasn’t legal. In fact, some areas of the Japanese auto-parts business were rife with bid rigging and collusion, according to confessions by companies and executives to antitrust officials around the globe that have produced multimillion-dollar fines and a dozen prison sentences.
How was these revealed? Nissan was the first among the Japanese firms to break this organization, and go for a more open-bid system. Under pressure to stay competitive, especially in the US, Honda and Toyota began to emulate that practice, and effectively demonstrated that prices indeed can go down when getting out of these schemes. Changes in the Japanese anti-trust laws further enabled these revelations. The question is where is the line drawn between supply chain coordination and illegal behavior. Clearly, bid rigging is illegal. However, the sentiment is that coordination action, in and of itself should not be outlawed:
We don’t feel victimized,” said an executive at one major Japanese auto maker who declined to be identified. “Different suppliers work hand-in-hand and divide up large lot orders in a way that assures a steady flow of parts.
The question will be the extent to which these lawsuits reduce the appetite among firms to help each other improve their supply chains and coordinate their actions, both crucial steps in staying competitive.