Toyota and Nissan: Reinterpretation of the Japanese Auto Keiretsus

Abstract

Toyota is one of the most successful companies in the world, when measured by market shares and profitability. Journal articles and books explaining Toyota’s success abound. More recent research has tended to focus on Toyota alone while earlier studies examined the competitive advantage of the Japanese automobile industry as a whole. The path of inquiry into Toyota’s success began with the concept of keiretsu. Keiretsu is a Japanese form of networking. It is typically found in the automobile and electronics industry. It involves close collaboration between the assemblers and their respective parts suppliers for mutual benefits, and it is thought to be initiated by private enterprises with no relation to government industrial policy. Both Toyota and Nissan are believed to have adopted similar keiretsu governance, which is considered by academia and industry experts as one reason why in the 1980s and the 1990s, Japan as a whole outperformed the auto industry in both the U.S.A. and Europe. However, the 1990s saw Nissan struggling to keep up with Toyota’s performance. Nissan, which had supposedly adopted the same governance structure as Toyota, found itself increasingly mired in debt and finally abandoned its keiretsu supplier network in 1999. The concept of keiretsu as a source of competitive advantage for the Japanese automobile industry is heard no more. Academia turns to the Toyota production system in search of the secrets that drive Toyota’s success beyond imitation. This thesis questions the assumption that Toyota and Nissan shared similar governance structures. It examines how a post-war industrial policy led to the adoption of two different keiretsu structures by Toyota and Nissan as each assembler had a specific set of resources and competences. However, different keiretsu structures did not result in inter-firm performance differences between the two competitors throughout the duration of the industrial policy. What then is the source of Toyota’s competitive advantage and its inimitability? This dissertation reinterprets the post-war business history of the Japanese automobile industry and unravels how an unusual bargaining process between Toyota and its most significant strategic partner – Denso – confounded researchers in the literature.