During the past few years, the business press and academic literature have been exhorting managers to move away from arm’s-length relationships and move toward longer-term collaborative strategic partnerships with external business partners. This advice comes 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 effective management of its suppliers has led to a leap of faith in Western management circles, where managers and business consultants tout strategic partnerships as the next core competency and source of competitive advantage. In the automobile sector, for example, all three U.S. manufacturers, and most of their European competitors, including Renault, Peugeot, and Volkswagen, have launched programs to decrease their level of vertical integration, reduce their total number of direct suppliers, and move toward publicly declared strategic partnerships.
Do Japanese firms 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 unjustified. 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 firm choose under different external contingencies? This is a strategic decision because it affects how a firm defines its boundaries and core activities. Second, what is the appropriate way to manage each different 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... To read the complete article, login or sign-up using the form below.
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