A Portfolios of Buyer-Supplier Relationships

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MAGAZINE SUMMER 1999 • RESEARCH FEATURE
Portfolios of
Buyer-
Supplier
Relationships
Topics M. Bensaou • July 15, 1999 READING TIME: 21 MIN
What to Read Next
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Partnerships & Alliances During the past few years, the business press
02 The 11 Sources of
and academic literature have been exhorting Disruption Every Company
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managers to move away from arm’s-length
relationships and move toward longer-term 03 Special Spring Issue:
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collaborative strategic partnerships with
external business partners. This advice comes 04 Podcast: How to Spot
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as a natural reaction to the numerous empirical
studies conducted during the past decade that
compare Japanese production and supply
practices with those of the rest of the world.1 The
now mythical link between Toyota’s success and
the eGective management of its suppliers has
led to a leap of faith in Western management
https://sloanreview.mit.edu/article/portfolios-of-buyersupplier-relationships/ Page 1 of 24
circles, where managers and business

consultants tout strategic partnerships as the Autonomous Virtual
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of their European competitors, including
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launched programs to decrease their level of
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vertical integration, reduce their total number of
direct suppliers, and move toward publicly
declared strategic partnerships.
Do Japanese Xrms manage primarily by

partnerships? Empirical data on supplier
relationships in the United States and Japan
across a representative set of components and
technologies show this common assumption to
be unjustiXed. While strategic partnerships
create new value, they are costly to develop,
nurture, and maintain. In addition, they are risky,
given the specialized investments they require.
As an alternative, in this article, I propose and
empirically validate a framework for managing a
portfolio of relationships. My purpose is to help
senior managers answer two key questions.
First, which governance structure or relational
design should a Xrm choose under diGerent
external contingencies? This is a strategic
decision because it aGects how a Xrm deXnes its
boundaries and core activities. Second, what is
the appropriate way to manage each diGerent
type of relationship? This is an organizational
question.
Types of
Relationships
As part of a broader project on supplier
relationships, I administered a survey

questionnaire, in English and Japanese, to a total
of 447 managers in all three U.S. and eleven
Japanese automobile manufacturers.2 Each
informant or boundary spanner (i.e., a
purchasing agent or engineer) responded for
only one product and one supplier for which he
or she was responsible. As a result, I obtained
comprehensive information about the external
and internal aspects of each relationship: the
data included multiple items about (1) the
component and its technology; (2) competition
in the upstream market; (3) the supplier itself;
(4) the nature of the boundary spanner’s job; (5)
the internal workings of the relationship, that is,
the contractual conditions, the social climate,
and the extent and type of information exchange
within the relationship; and (6) the performance
of the relationship. Unique to the study was the
systematic control for, and selection of, a
representative cross-section of products, so as
to avoid a data set with mostly self-selected
strategic partnerships.
Searching for naturally occurring patterns within

the data, I found a set of management variables
that tend to co-vary together and interact with
one another in creating eGective supplier
relationships. In particular, I discovered that the
level of speciXc investments made by either
partner to the relationship signiXcantly
correlates with practices commonly associated
with strategic partnerships, such as long-term
relationships, mutual trust, cooperation, and
wide-scope relationships that include multiple
components.3 These are investments that are
didcult or expensive to transfer to another
relationship or that may lose their value when
redeployed to another supplier or customer. The
mutual exchange of speciXc investments
therefore appeared as an interesting and valid

criterion to use to compare the relationships in
the data set.
When I segmented the two national samples into

four generic cells using this criterion, I was
startled by the result (see Figure 1). The vertical
axis represents the buyer’s speciXc investments.
These are tangible investments in buildings,
tooling, and equipment dedicated to the supplier
or in products and processes customized to the
components procured from the supplier. Special
tools and dies are built or lent speciXcally for the
component delivered by the supplier. This
customization can, in turn, lead to tailoring some
of the design work to some key components
(such as air conditioning or wire harnessing):
customization breeds more customization.
Buyer’s investments also include intangible

investments in people or in time and eGort spent
learning the supplier’s business practices and
routines or spent exchanging information, best
practices, and knowledge to further develop and
nurture the relationship. This is time and eGort,
of course, not spent developing new business
opportunities with another supplier; the beneXts
of these initiatives accrue primarily to this single
relationship. The horizontal axis represents the
supplier’s speciXc investments. Tangible
investments include plant or warehouse location
or layout and specialized facilities and dies.
Intangible investments include sending guest
engineers and developing information systems
compatible with the buyer’s proprietary
databases or electronic data interchange
protocols.
In the “strategic partnership” cell, both parties

have posted highly idiosyncratic assets into the
relationship. Economists call these assets
“credible commitments” or “hostages”;

practitioners speak of “real commitment” or
“tying their hands to each other.” I met managers
in U.S. and Japanese supplier companies who
were cynical about their large customers’
oGensively managed strategic partnership
programs and emphasized the lack of
reciprocity in the relationship. One manager
complained, “We are tired of this smooth talk
about ‘let’s work in partnership.’. . . We want them
to put their money where their mouth is.” She
added that “under the promise of more
business, a long-term commitment, and a trust-
based relationship, they [the customer] are
squeezing us even more than before.” A
purchasing agent at a major Japanese car
manufacturer admitted that one of his long-term
suppliers “has become complacent and . . . is
free-riding our partnership.”
The “market exchange” cell represents the

cluster of relationships in which neither of the
parties has developed specialized assets to work
with the other; they can work together using
general-purpose assets. Each party can turn to
the marketplace and shift to another business
partner at low cost and minimal damage, hence
the label. The “captive buyer” cell refers to those
asymmetric relationships in which the buyer is
held hostage by a supplier free to switch to
another customer. Finally, in the “captive
supplier” relationships, the supplier enters the
trap of unilaterally making idiosyncratic
investments to win and keep the business with
the customer.
Managing a
Portfolio of
Relationships
The research Xndings counter the popular belief
that Japanese Xrms have a propensity to
manage their suppliers with highly dedicated
relationships, or strategic partnerships (see
Figure 1). They appear to conduct their business
with a smaller ratio of strategic partnerships
than is commonly believed (a mere 19 percent of
the sample) and to make extensive use of
market-exchange relationships (31 percent of
the total), a practice usually associated with
Western manufacturers. Similarly, while some 25
percent of U.S. automakers engage in market-
exchange relationships, another 25 percent have
been aggressively streamlining their supply base
and have developed mutually committed
relationships with a select group of suppliers.
U.S. and Japanese Xrms alike balance a portfolio
of diGerent types of relationships rather than
rely on only one type. Not surprisingly, Xrms in
both countries are involved in market-exchange
relationships. After all, there are thousands of
diGerent components in the assembly of today’s
vehicles, many of which qualify as commodities
and would not necessarily be integrated into a
larger subsystem.
As for diGerences between the two countries, the

most signiXcant is the relative importance of
captive-supplier relationships in Japan (35
percent) and captive-buyer relationships in the
United States (42 percent). Japanese companies
seem to face a market structure in which they
can hold suppliers hostage and demand that
they make specialized investments to get and
keep their business.4 Important customers such
as Nissan or Honda can demand that suppliers
locate a plant or warehouse near their assembly
plant, provide them with internal cost structure

data, or send a quality engineer to the Xnal
assembly line. On the other hand, these buyers
keep their options open and typically split the
procured volume among multiple locked-in
suppliers, even for the same component or
technology. These are not strategic partnerships
since the buyer does not commit specialized
assets. In contrast, U.S. automakers face a
supplier base that is reluctant to tie its hands to
any particular buyer and prefers to maintain
substantial business with most key domestic
and international customers.
Are there any performance diGerences among

the four cells of Figure 1? I found no statistically
signiXcant diGerence. No one type of
relationship, not even the strategic partnership,
is inherently superior to the others. Each cell
contained low- and high-performing
relationships, suggesting that each type of
relationship can be well or poorly managed.
Successful supply-chain management therefore
requires the eGective and edcient management
of a portfolio of relationships: Xrst, Xrms must
match the optimal type of relationship to the
various product, market, and supplier
conditions; second, they must adopt the
appropriate management approach for each
type of relationship. Supply-chain management
failure is the result of a mismatched relational
design or a poorly managed appropriate design.
This conclusion raises two questions. First, how

do U.S. and Japanese Xrms balance their
portfolio of relationships? How, for example, can
managers determine when a captive-buyer
design is more appropriate than a strategic
partnership? Second, how diGerently should a
Xrm manage one type of relationship from
another? To answer the Xrst question, I further

analyzed the data: I looked for the variables,
among those used to capture the external
market and technology environment of each
relationship, that displayed signiXcant
diGerences across the four cells. I discovered, for
instance, that the average product complexity of
the components belonging to the market-
exchange cell is signiXcantly lower than the
average product complexity of those belonging
to the other three cells. In the Xnal analysis, the
four cells diGer along three sets of contextual
factors: (1) the characteristics of the product
exchanged and its underlying technology, (2) the
level of competition in the upstream market, and
(3) the capabilities of the suppliers available in
the marketplace (see Figure 2).
To answer the second question, I proceeded

diGerently. I split each cell into high-performing
and the low-performing relationships and then
used the same procedure to look for the
variables describing the internal workings of
each relationship that display a diGerence
between the two performance subgroups. For
instance, successful relationships within the
strategic partnership cell exhibit a high level of
mutual trust, early supplier involvement in
design, extensive cooperation, and a high level of
information exchange (hence the label). These
management variables can be classiXed into
three generic dimensions: (1) information-
sharing practices, (2) characteristics of
boundary spanners’ jobs, and (3) the social
climate within the relationship (see Figure 3).
The Xndings suggest that components having
similar characteristics in terms of their
underlying technology (e.g., based on a mature
or a new technology), their architectural design
(e.g., complex designs), and the market
structure (e.g., concentration in the upstream

market) tend to be managed the same way.5
Contextual
ProOles
The following proXles describe the product and
market conditions under which each type of
relationship is likely to appear.
Market-Exchange
ProOle
U.S. and Japanese Xrms typically use market-
exchange relationships for highly standardized
products (see Figure 2). These are products that
require little or no customization to the
automaker’s Xnal product, for example, standard
bearings or relays. They are based on a simple,
mature technology that requires little
engineering eGort and expertise from suppliers.
Although a few technically complex components
exist in this cluster, their design process is stable
and well structured, and their manufacturing
process is well established. Market-exchange
relationships also appear appropriate for
products not subject to major technological
innovation or frequent design changes. U.S. and
Japanese buyers treat these products as
commodities and systematically outsource their
manufacture.
The data indicate that manufacturers can easily

Xnd many suppliers capable of engineering,
manufacturing, and delivering this kind of
product. This is a business that requires little
capital investment and few innovation
capabilities. The upstream market is therefore

highly competitive, with many small,
independent “mom and pop” shops competing
for a stable, saturated, and even declining
market. These small Xrms rely heavily on the
auto industry and do business with most, if not
all, car companies. Suppliers can also easily and
cheaply Xnd and shift their production from one
customer to another, thus beneXting from low
switching costs. They do not have any
proprietary technology embedded in their
product or manufacturing process.
For example, in both countries, for commodity-

like products such as standard fasteners or
ornamentation, the primary goal of
manufacturers is to minimize cost and leverage
economies of scale through large volumes
relying on a number of suppliers. Nearby mom-
and-pop shops are ready to make price
concessions. They usually get repeat business
despite short-term contracts. Furthermore,
these relationships can be positive and
collaborative (within the narrow scope of
straightforward transactions), without at the
same time being a strategic partnership; that is,
the partners make no long-term commitments
and can easily Xnd an alternative supplier or
customer. As noted earlier, many Japanese Xrms
are engaged in these kinds of relationships.6
Captive-Buyer ProOle
The main diGerence between captive-buyer and
market-exchange relationships lies more in the
characteristics of the upstream market and the
kind of suppliers available than in the
characteristics of the product (see Figure 2). I
found captive-buyer relationships for bearings,
bumper fascia, beams, and glass products.

These relationships involve complex
components that require some customization
but that are still based on a well-understood,
stable technology.
Engineers surveyed in both countries do not

anticipate major product, process, or even
price/performance improvements in the next
Xve years for this kind of product. In addition,
they report stable demand and limited market
growth. The supply market is highly
concentrated, with a few large, well-established
players. Incumbents typically possess a
proprietary technology and/or beneXt from a
strong bargaining power over car companies.
Should these companies terminate the contract,
they would Xnd it didcult and costly to locate
and shift to another source of supply. To
compensate for their heavy economic and
technological reliance on the supplier’s business,
both U.S. and Japanese automakers keep some
in-house manufacturing capability for the
products involved.
Strategic Partnership
ProOle
The relationships in the strategic partnership
cell involve highly customized components or
integrated subsystems that require strong
technology and engineering capabilities (see
Figure 2). The technical complexity of these
subsystems aGects and runs across the multiple
stages of the value chain —from the concept
design to the development of tooling and
manufacturing processes by both the buyer and
the supplier to the coordination of just-in-time
production and delivery between the two Xrms.
The automaker by deXnition has made

important investments in the relationship, tying
critical internal assets to the supplier and
thereby increasing the potential risk and
damage if the supplier behaves
opportunistically.
The upstream market is high growth but

extremely competitive, with great uncertainty
about the choice of the right technology or
standard, as innovation leaps and frequent
technical changes tend to disturb industry
structure. Partners involved in a strategic
partnership therefore choose to “tie each other’s
hands” and develop a close, long-term
relationship. Suppliers, mostly large Xrms with a
broad range of product oGerings, have
developed design and production skills and
capabilities tailored to the buyer’s business.
Toyota’s strategic partners build plants or
warehouses only thirty miles away on average
from the Xnal assembly plants.7 The two
partners perceive their economic fates as
closely linked. In addition, to keep up with the
fast pace of innovation and maintain their
proprietary technology, suppliers invest heavily
in fundamental research (in some cases, jointly
with the automaker) in addition to the usual joint
investments in new product or process
development. In both countries, automakers
usually keep an in-house design, development,
testing, and, sometimes, manufacturing
capability for these technologies.
Strategic partnerships are formed for such

products as power steering, suspension,
breaking, and air-conditioning systems. A high
level of interaction and interdependency (for
example, during design, manufacturing, and
even operation) exists between these systems
and the rest of the vehicle. Competition in the

automobile business is increasingly waged in the
technology and design of these core systems.
Captive-Supplier
ProOle
Captive-supplier relationships involve highly
complex products based on a new technology
typically developed and owned by the supplier
(see Figure 2). Usually integrated subsystems,
these products require heavy capital
investments from the supplier just to stay in the
market and to maintain its strong design
reputation and superior engineering and
manufacturing capabilities. These products and
their underlying technology are in high demand,
but car companies seem to shift suppliers
quickly as the technology evolves and other
players oGer improvements in functionality and
product performance. Hence, despite their
proprietary technology, suppliers have limited
bargaining power. Other suppliers, among the
few qualiXed ones, would readily make the
specialized investments requested by the
customer to get a share of the business.
The upstream market appears Xercely

competitive and heavily reliant on the
automotive sector. In Japan, for example,
contrary to popular belief, auto manufacturers
typically use up to four capable suppliers to
procure the same high-value component. One
company in the sample kept three Xrms as its
primary source for instrument panels and
dashboards. Each supplier has a promise of
repeat business; that is, a base contract that
stipulates that unless something adverse
happens, the relationship will continue, which
provides the three suppliers with sudcient

incentives to take a longer-term view and make
investments in R&D or process technology to
add value for the customer. The assembler, on
the other hand, keeps these three suppliers “on
their toes” as it moves 4 percent to 5 percent of
its annual volume from one to another each time
it identiXes a deXciency in quality or delivery
reliability.
Management
ProOles
The following proXles describe the common
management features of the best performers in
each cell. As explained earlier, I looked for
diGerences in management practices between
the low and high performers in each cell (see
Figure 3).
Market-Exchange
Management
In high-performing market-exchange
relationships, information exchange between
two Xrms takes place mainly during bidding and
contract negotiations. Suppliers do not get
involved in the design of the component and
usually manufacture to the buyer’s
speciXcations. The operational coordination of
delivery and inventory as well as the monitoring
of quality are executed using proven
organizational routines. Mizumi, for example, the
second-largest Japanese provider of metal
molds, has few salespeople. Originally
distributing its products by catalogue, it has
dramatically increased the number of orders
executed through electronic data interchange.
Boundary spanners, or purchasing agents and

engineers, report spending a limited amount of
their total time with the supplier staG. They
rarely visit the supplier’s premises, except when
urgent and exceptional operational problems
occur. They perceive their tasks as highly routine
and structured; their individual performance
does not depend on the eGective performance of
supplier staG. Although mutual trust,
cooperation, and systematic joint eGort are
typically absent from these relationships, the
social climate is generally positive. Automakers
seem to treat these suppliers fairly, reasonably
sharing the beneXts, burdens, and risks in the
relationship within the limits of the contract.
Suppliers have a good reputation for holding to
their commitments and show a track record that
satisXes the automaker. While some market-
exchange relationships in the data set were
based on a formal short-term contract, they had
actually lasted for thirty years with intermittent
periods of no business together.
Captive-Buyer
Management
Despite the need for customization, operational
coordination between buyer and supplier is
broken down into manageable, well-understood
steps and procedures. In addition, the
complexity of the product requires the exchange
of detailed information on a continuous basis,
justifying the high level of communication that
takes place in successful captive-buyer
relationships in both countries. Indeed, multiple
functional areas such as design, manufacturing,
quality, and purchasing or sales work together
across two Xrms, establishing a “broadband”

communication channel that contrasts with the
“narrow-band” channel in market-exchange
relationships. Boundary spanners see their tasks
as structured and highly predictable, but
acknowledge spending a large amount of their
time dealing with the supplier. The social climate
is typically tense, even in successful
relationships. Respondents in both countries
report mutual distrust; suppliers have a poor
reputation and a negative track record despite
automakers’ eGorts to cooperate and provide
suppliers with technical assistance, training, and
education.
Strategic Partnership
Management
In these close relationships, the two partners
exchange information regularly, through reports,
standardized rules and operating procedures,
electronic transfer of schedules, and face-to-
face contact. Engineers from the supplier Xrm
pay frequent visits to the assembler’s
engineering facilities, purchasing headquarters,
and assembly plants. Guest engineers often
reside at the manufacturer’s premises or are
integral members of the team involved in the
design of a major system. In addition, buyers
exchange data with suppliers in a form directly
readable by a computer either by exchanging
magnetic tapes or discs (primarily in Japan) or
by sending data from one computer to another
by modem or telecommunication links (primarily
in the United States). Firms use electronic data
interchange across multiple functional areas:
purchasing (e.g., request for quotes, purchase
orders), engineering (e.g., paper drawings,
CAD/CAM Xle transfer, or three-dimensional

wireframe), and quality and production control.
The fast pace of change in technology and

product design makes it didcult to forecast and
plan; moreover, any decision can quickly
become obsolete and irrelevant. U.S. and
Japanese boundary spanners in strategic
partnerships thus view their jobs as being
nonroutine, ill deXned, and ill structured. They
spend a large amount of time with the supplier
staG, engaged in coordinating tasks (e.g.,
exchanging ideas about future plans and
improvements) as opposed to control tasks
(e.g., negotiating contracts and monitoring
supplier performance).
The social climate in strategic partnerships is

reportedly trusting and collaborative.8 The
manufacturer displays a high commitment to
the relationship and is willing to engage in joint
action with the supplier. For example,
assemblers often get suppliers involved in the
early stages of the component design and
cooperate with them in long-range planning;
advanced research; product, process, and
tooling development; technical assistance; and
training and education. At the same time,
however, tensions between buyer and supplier
often arise over component pricing, cost
structure (and contribution to lowering cost over
time), product design, quality levels, and
inventory and delivery policies. These
disagreements are usually resolved through
collaborative processes rather than through
confrontation. In these relationships, as in some
market-exchange relationships, there is a strong
sense of sharing the beneXts, burdens, and risks.
Captive-Supplier
Management
Compared with the other three clusters, captive-
supplier relationships involve a lower level of
information exchange. Communication focuses
on complex coordinating tasks rather than the
control activities associated with market-
exchange relationships. Boundary spanners
spend less time on tasks such as negotiating the
contract and monitoring the supplier. Who pays
more visits? Clearly, the burden rests on the
supplier. The social climate of the relationship is
one of high mutual trust, although that trust
does not necessarily translate into active joint
planning or development as in strategic
partnerships.
Paths to Success
and Failure
What do we learn by integrating the contextual
and managerial proXles? Figure 3 shows the
managerial practices that high performers in
each cell use to match the coordination,
information, and knowledge-exchange
requirements presented by the external context
depicted in Figure 2. Structured routines and
“narrow-band” information exchange, for
instance, are sudcient to coordinate edciently
in the case of standardized products based on a
mature technology. Managers can use a simple
framework to compare the coordination,
information, and knowledge-exchange
capabilities of their actual relationships (or
future plans) against the relationship
requirements determined by the product and its
market (see Figure 4).
There are two kinds of successful relationships:

high requirements-high capabilities and low
requirements-low capabilities. There are also
two paths to failure: underdesigned relationships
and overdesigned relationships. For example,
Xrms that invest in building trust through
frequent visits, guest engineers, and cross-
company teams when the product and market
context calls for simple, impersonal control and
data-exchange mechanisms are overdesigning
the relationship. This path is not only costly but
also risky, given the specialized investments
involved, in particular, the intangible ones (e.g.,
people, information, or knowledge).
Designing or redesigning relationships consists

of three analytical steps: (1) the strategic
selection of relational types to match the
external conditions given by the product, the
technology, and the market (Figure 2); (2) the
identiXcation of an appropriate management
proXle for each type of relational design (Figure
3); and (3) matching the design of the
relationship, which could be over- or
underdesigned, to the desired management
proXle (Figure 4).
Conclusion
Contrary to myth, empirical study shows that
the supply-chain decisions and behavior of
Japanese Xrms converge with those of their U.S.
counterparts. Firms in both countries manage a
portfolio of rela- ionships. Indeed, research
highlights the existence of a large proportion of
market-exchange relationships in Japan and of
strategic partnerships in the United States. In
other words, good practice in both countries

means, Xrst, properly balancing a portfolio of
relationships adapted to product and market
conditions and, second, managing each type of
relationship eGectively. To help managers avoid
the traps of underdesigning some relationships
(the problem of the 1980s) and overdesigning
others (the risk for the future), I oGer a
contextual proXle to show when one type of
relationship is more likely than another and
propose three key environmental factors to
consider: (1) the product exchanged and its
technology, (2) the competitive conditions in the
upstream market, and (3) the capabilities of the
suppliers available. Finally, I suggest a
management proXle for each type of relationship
along three mechanisms that contribute to
coordination and information and knowledge
exchange: (1) information sharing, (2) boundary
spanners’ job characteristics, and (3) the social
climate of the relationship.
Many large Xrms, especially in manufacturing,

are streamlining their operations, typically
moving away from traditional vertical integration
toward more external contracting of key
activities. As these inter-Xrm relationships
increase in number and variety, organizations
cannot manage with only one design for all
relationships. They need to manage a portfolio of
relationships. I oGer a two-step framework to
help senior executives, Xrst, identify which type
of relationship matches the competitive
conditions surrounding the product or service
exchanged and, second, design the appropriate
management model for each type of
relationship. As they consciously and
systematically match the design of each
relationship to its external context, product
executives can control the sweeping fad for
“strategic partnerships” and avoid the two

common traps of underdesigning and
overdesigning external relationships.
ABOUT THE AUTHOR

M. Bensaou is associate professor of technology
The Compliance Insight
management, INSEAD, and visiting associate professor,
Give insight for compliance
Harvard Business School.
Extraordinary Compliance Service
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thecomplianceinsight.com
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In the data-collection process, sampling followed the same
procedure in all three U.S. and eleven Japanese car
companies. Senior managers at the central division or
platform level were asked to select a set of car
components under their responsibility from the stratiXed
list of Xfty components prepared by the researcher (i.e., to
prevent selection bias). For each of the selected
components, they helped identify the individual
purchasing agents and/or engineers to whom I could send
the questionnaire. The Xnal decision about which speciXc
supplier (the respondent’s name and the name of the
supplier were not asked) and which part number to
choose was at the respondent’s discretion. The data were
collected in 1991 with a 43 percent total response rate; n =
140 in the United States and n = 307 in Japan.
3. For instance, “buyer’s asset speciXcity” is signiXcantly

correlated:
at the .40 level (p < .001) with an 8-item scale of

cooperation between buyer and supplier;
at the .10 level (p < .05) with the scope of the relationship,
i.e., the number of products provided by the supplier;
at the .16 level (p < .01) with a 3-item scale of the level of
trust;
at the .22 level (p < .001) with the extent to which the
beneXts, burden, and risks are perceived to be shared
fairly within the relationship;
at the .18 level (p < .001) with the expectation of continuity
of the relationship in the long term;
at the .25 level (p < .001) with the extent of visits

exchanged between the two parties.
4. J.H. Dyer, “Specialized Supplier Networks as a Source
of Competitive Advantage: Evidence from the Auto
Industry,” Strategic Management Journal, volume 17, April
1996, pp. 271–291;
and J.H. Dyer, “Dedicated Assets: Japan’s Manufacturing

Edge,” Harvard Business Review, volume 72, November-
December 1994, pp. 174–178.
Dyer (1996) has empirically shown the link between asset
speciXcity and performance and has described suppliers’
dedicated assets as the source of Japanese
manufacturers’ superior performance and the foundation
of their close relationship with their network of suppliers.
“Most competitors know that a key to the success of
Japanese network relationships is the practice of
dedicating supplier assets to the customer.” Dyer (1994),
p. 174.
5. The structure of the various component markets (as
well as the car market) diGers across the United States
and Japan, even for similar components. Similarly, the
commercial and competitive availability of similar
technologies may vary across the two national markets.
The data I collected consist of relationships only between
U.S. automakers and their U.S. suppliers within the U.S.
market and relationships between Japanese automakers
and their Japanese suppliers within the Japanese market.
In addition, these external contingencies may vary over
time, e.g., the entry of Japanese and European
automakers starting in the 1970s. See:
S. Helper, “Strategy and Irreversibility in Supplier

Relations: The Case of the U.S. Automobile Industry,”
Business History Review, volume 65, Winter 1991, pp. 781–
824.
6. See K. Sakai, “The Feudal World of Japanese
Manufacturing,” Harvard Business Review, volume 68,
November–December 1990, pp. 38–49.
7. See Dyer (1994).

8. In this article, I suggest that these practices, such as
trust, fairness, and extensive cooperation are
characteristics of well-performing strategic partnerships
more than characteristics of Japanese supplier relations.
The national diGerences are resected in the frequency of

each type of relationship in each country.
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TAGS: Business Relationships, Distribution, Emerging
Markets, Globalization, Japan, Partnerships, Supply Chain
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Sections Special Features SEARCH STORE SIGN IN SUBSCRIBE

MAGAZINE SUMMER 1999 • RESEARCH FEATURE

circles, where managers and business

Do Japanese Xrms manage primarily by

relationships, I administered a survey

Searching for naturally occurring patterns within

therefore appeared as an interesting and valid

When I segmented the two national samples into

Buyer’s investments also include intangible

In the “strategic partnership” cell, both parties

“credible commitments” or “hostages”;

The “market exchange” cell represents the

As for diGerences between the two countries, the

plant, provide them with internal cost structure

Are there any performance diGerences among

This conclusion raises two questions. First, how

another? To answer the Xrst question, I further

To answer the second question, I proceeded

structure (e.g., concentration in the upstream

The data indicate that manufacturers can easily

capabilities. The upstream market is therefore

For example, in both countries, for commodity-

bumper fascia, beams, and glass products.

Engineers surveyed in both countries do not

The automaker by deXnition has made

The upstream market is high growth but

Strategic partnerships are formed for such

and the rest of the vehicle. Competition in the

The upstream market appears Xercely

provides the three suppliers with sudcient

executed through electronic data interchange.

Boundary spanners, or purchasing agents and

across two Xrms, establishing a “broadband”

CAD/CAM Xle transfer, or three-dimensional

The fast pace of change in technology and

The social climate in strategic partnerships is

market (see Figure 4).

There are two kinds of successful relationships:

Designing or redesigning relationships consists

other words, good practice in both countries

Many large Xrms, especially in manufacturing,

“strategic partnerships” and avoid the two

ABOUT THE AUTHOR

1. M. Cusumano and A. Takeishi, “Supplier Relations and

J.H. Dyer and W.G. Ouchi, “Japanese-Style Business

S. Helper and M. Sako, “Supplier Relations in Japan and

M. Smitka, Competitive Ties: Subcontracting in the

M. Bensaou and N. Venkatraman, “ConXgurations of

M. Bensaou, “Interorganizational Cooperation: The Role of

3. For instance, “buyer’s asset speciXcity” is signiXcantly

at the .40 level (p < .001) with an 8-item scale of

at the .25 level (p < .001) with the extent of visits

and J.H. Dyer, “Dedicated Assets: Japan’s Manufacturing

S. Helper, “Strategy and Irreversibility in Supplier

7. See Dyer (1994).

The national diGerences are resected in the frequency of

TAGS: Business Relationships, Distribution, Emerging

Markets, Globalization, Japan, Partnerships, Supply Chain

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