Inter-firm transactional relationships in Yokokai: An empirical investigation using the IDE spatial model

This paper discusses recent fundamental changes in the Japanese alliance networks known as keiretsu, and reports the findings of an empirical investigation on the relationship between these changes and corporate performance. More specially, the performance of Japanese auto manufacturers, such as Toyota, Mazda and Nissan, among others, has significantly improved due to sophisticated production system technologies, highly productive workers, and recurring transaction relationship with other partners in their network organization. One possible determinant of their success could be due to their unique organization forms – the keiretsu– which provides a strong platform to forge their strategic alliance ties with their parts suppliers as well as collaboration into research and development activities with other automobile manufacturers. After the Lehman Brothers bankruptcy in 2008, the strong ties between automobile makers and their supplier partners underwent significant modifications manifested by a “loosening of network ties due to “external influences”. Consequently, this begs the following questions: What is the status quo of automotive keiretsus? Are transactional relationships in keiretsu still associated with improved corporate performance? To answer these questions, this paper reports the results of a study that collected data on transaction to shed light on the relationship between inter-firm transactional relationship and corporate performance. The findings of this empirical investigation reveal that: (1) Keiretsu is a flexible, highly adaptive organizational form; its scale is prone to modifications in response to changes in economic conditions; (2) Transactional relationship is still a significant determinant of increasing profits for keiretsu partners even in the aftermath of the 2008 financial crisis.