Computer networks and interfirm relationships in the automobile industry: A comparative study of Japan and Korea

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Computers ind. Engng Vol. 33, Nos 3-4, pp. 635-638, 1997 © 1997 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0360-8352/97 $17.00 + 0.00 PII: S 0 3 6 0 - g 3 5 2 ( 9 7 ) 0 0 2 1 0 - 6

Computer Networks and Interfirm Relationships in the Automobile Industry: A Comparative Study of Japan and Korea ICHIDA Yozi Nihon University College of Commerce Kinuta 5-2-1, Setagaya-ku, Tokyo, Japan Abstract This paper presents the results of comparative research between the Japanese and Korean automobile industries through empirical research on applications in the interfirm network and the effects on management. Almost al] Japanese automobile parts suppliers installed an interfirm network in the latter ha]f of the 1980s. In the ease of Korea, it was in the middle 1990s. The type ofinterfirm networks both in Japanand Korea are vertical networks in which the assembler takes leadership for the construction and maintenance of their interfirm network. The kind of interchanged data on the network reflects the interfirm relationship between the assembler and the parts suppliers. Data in the design and technology field are interchanged via the interfirm network more in Japan than in Korea. This result demonstrates that the assembler and the parts suppliers have a closer relationship, such as "design-in", in Japan than in Korea. © 1997 Elsevier Science Ltd Keywords: information network, interfirm relationship, design-in Introduction

computer network would strengthen the relationship among the assembler and the parts suppliers, fixing and strengthening the closeness of the business connection. As a consequence of the closeness, it is strongly possible for parts suppliers to depend on the assembler. It was pointed out that there is fear by which the automobile assembler would compel the parts supplies to join the computer network which is managed by the assembler, or the assembler could monitor business activities of parts suppliers through the network. Okamuro attempted the first research for Japanese automobile parts suppliers using questionnaires to analyse the impact of the computer network on the intedirm relationship. He concludes that there is no objective evidence that the computer network between the automobile assembler and the parts suppliers has had a special impact on their interfirm relationship.

The automobile industry consists of several types of enterprises such as the big assemblers, parts suppliers, material suppliers, car dealers and so on. According to the increase in car production, data which are interchanged among the automobile assembler and the parts suppliers have increased in their volume. They need more efficient means to transfer data than mail, telephone and facsimile. In the 1980s, computer networks became popular at many firms in Japan, because small computers such as work stations and personal computers were widely available, and the substantial deregulation effected the field of communications in 1982 and 1985. There is lots of discussion about the effects of the computer network in business and the impact on the interfirm relationship. But those discussion were not necessarily reflected throughout the actual utilisation of computer network. Even in the automobile industry, which is notable as one of the most widespread industries utilising computer networks, active installation of computer networks occurred in the middle of 1980s in Japan. Our research group has empirical research on the effects of computer networks on parts suppliers and the impact on the interfn'm relationship in the Japanese and Korean automobile industry; research which is based on questionnaires distributed to parts suppliers.

Approach

The collaborative research group in Nihon University which includes Okamuro and the author attempted to extend the empirical study to the automobile industry in Korea. We added and changed the question items of the questionnaires which Okamuro had made in Japan for Korean parts supplies. Okamuro sent the questionnaires to the 1,096 Japanese automobile parts suppliers which are listed on "Japanese Parts Industry 92/93". He got questionnaire answers from 263 firms including 234 valid results between May and June in 1994. Our research group and a Korean co-researcher sent the questionnaires to the 1,423 Korean automobile parts suppliers. We got 118 valid answers between February and March in 1996.

Background

There were two different opinions in the discussion of computer networks in Japanese business. One maintained that the computer network would promote a flexible and loose intedirm relationship. The other maintained that the

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( 1)The answering firms We classify the scale of the firms in 3 groups by the number of employees, which are small, medium and big. Small firms have less than 300 employees, medium finns have between 300 and 1,000 employees and big firms have more than 1,000 employees. (2)The state of installation of interfirm networks The number of firms which have not installed interfirm networks is 23 in Japan, and is 26 in Korea. Those firms are centred in the small scale class, with 19 firms in Japan and 23 firms in Korea. The most often stated reason not to introduce a network in Japan and Korea is that "there is no advantage to introducing a network". The second most common reason is that "there was no request from the automobile assembler". It shows that "the cost for the installation of it" and "the technical problem for the installation interfirm network" are not the main reasons. The following questionnaire answers are taken from only the finns which have installed an interfirm network. These firms are 210 firms in Japan, and are 91 firms in Korea. The time of the installation of interfirm networks peaked in 1989 and 1990(40.7%) at Japanese firms, and 88.3% of the firms which had installed networks by 1995 had installed them between 1989 and 1990. In the case of Korea, the first network was installed in 1985, and the peak came in 1993 and 1994(42%), and 82.8% of the firms which had installed networks by the present time(1996) had installed them by 1993 and 1994. The big parts suppliers installed the networks earlier than the medium and the small firms in Japan, but the small firms installed networks first, then the medium firms and the big firms did in Korea. (3)The number of assemblers linked on-line Most networks connect one automobile assembler with the parts suppliers; 50.0% of the firms in Japan and 48.5% of the firms in Korea. The next most common is a 2-company connection; 23.3% in Japan and 28.7% in Korea. The ratio of the firms which connect on the line to more than 3 assemblers is 17.8% in Japan but 6.6% in Korea. (4)The applications on the interfirm networks Ordering is the most available application on the interfirm network. 93.8% of the firms in Japan and 91.2% of the firms in Korea use the on-line service for ordering tasks. The number of firms which do 100% of their ordering on line is 20 firms in Japan (9.5%) and 20 firms in Korea(27%). Shipping assignment tasks and confirmation of delivered parts tasks are the second most available applications. 194 firms in Japan(92.4%) use the interfirm network and 77 firms in Korea(84.6%). Applications in the design and technological area

are used in 25 firn~ in Japan (11.9%) and in 6 firms in Korea (6.6%). (5)The effects of the interfirm network on management We asked respondents to evaluate effects of the interfirm network on management on a five-point scale from 1 to 5 such as "l:the most negative evaluation", "3:no change" and "5:the most positive evaluation". The negatively evaluated items are "to reduce stock of products and materials" , "to make closer interfirm relationship" and "to strengthen our competitiveness" in both Korea and Japan. Parts suppliers evaluated the items "to shorten leadtime" (4.0 points in Japan and 3.4 points in Korea) and "to improve accuracy in data communication" (4.0 points in Japan 3.2 points in Korea) more positively. Discussion

Both Japanese and Korean automobile computer networks are characterised by a vertical network in which data are exchanged between the assembler and parts suppliers. It means that each assembler has been taking leadership to develop it's computer network. Whether the network is the VAN style or point-to-point style, the assembler is the parent and parts suppliers are their subordinales. Data flows in the line only between the parent and the subordinales, but never flows among subordinales. This is quite different from a horizontal network like the Internet in which data could flow at any direction. I will point out the first difference between Japan and Korea, which is the applications on the interfirm networks. In both Japan and Korea, operational tasks of parts suppliers such as ordering, shipping assignment, confirmation delivered parts are processed via the interfirm network in a high ratio. The rate that the design and technological data are interchanged using the interfirm network is still low (11.9% in Japan and 6.6% in Korea) compared with ordering, however there is a qualitative difference in Japan and Korea beyond these figures. The difference is in the flow of data and the sharing the data on the interfirm network. This is the second difference between Japan and Korea which I will point out. When the assembler make orders of new parts to some parts supplier in the US and Korea, the assembler generally designs the fundamental blueprint, and hands it to the parts supplier. The primary medium for the design information is still the paper in Korea, but it becomes sometimes communicated via the interfirm network (6 firms in our research this time). The data flow in one direction from the assembler to parts suppliers in the Korean automobile network. On the contrary, Japanese parts suppliers join the project team in a new car development, which is called "design-in". Parts supplies which get new parts specifications from

Proceedings of 1996 ICC&IC the assembler design the new part and then require the inspection of the new parts design blueprint by the assembler. It is known as "shonin-zu(the approved figurey'. After the interfirm information network is installed, design and technological information are interchanged through the information network. There, the information flows in both directions between the car assemblers and the part suppliers and the data about the part is shared by them. As a result, the relation of both becomes closer. Recently, the participation of the part suppliers in new car development is more advanced. That is, the part suppliers didn't stop at the development participation of individual simple parts, but independently develop "parts set" which are compound parts such as a dashboard and the gauges to be incorporated there. In this case, the CAD/CAM 3-dimensional data is exchanged frequently through the information network between the car assembler and the part suppliers and the project participation members can access necessary data. It means that development information is shared among the project members. Computer prices have fallen at present, but the 3-D CAD/CAM system is still expensive. However, even if it is a medium and small-sized enterprise in Japan, it is attempting to install it aggressively to survive as the development member of the "design-in". Because, the parts suppliers which can not participate as the development member would be omitted from the 1st parts suppliers for which the car assembler is able to be directly traded and would become the 2nd parts suppliers which is the subcontractor of the 1st one. There is no case such as "design-in" in Korea. A Korean assembler sends the fixed data of blueprints or the CAD data to the parts supplier by using the interfirm network, therefore a Korean assembler never has a common data base with parts suppliers. The third difference is the impact on the interfirm relationship. One may compare the impact in terms of the difference in the amount sold before and after installation of the interfirm network. Only 3.8% of the firms in Japan could increase their sales, but 29.5% of the firms in Korea could increase their sales. Why does the interfirm network not have a special impact on to the interfirm relationship in Japan ? (1) Many parts suppliers deal with one (49.7%) or two (21.6%) automobile assemblers. There is a reliable mutual relationship which has matured over a long time, therefore the installation of the network led by the assembler does not impact on the interfirm relationship between the assembler and the parts supplier. (2) Hardware which is used on the interfirm network is not expensive because of mass production for small size computers. Computer software such as a network control program and application programs are also not expensive,

because the assembler who developsthose software rents them at a low price or gives them away for free. Therefore, it is difficult for some parts supplier to hold a more dominant position than the others. On the other hand, 29.5% of Korean parts suppliers increased sales after the installation of an interfirm network, even if the network type is the same vertical network. I think the reason is as follows. When the assembler ordered a part, it was ordinary to use only one parts supplier in the group business and have exclusive dealings, because there was a process that the assembler brought up part suppliers in Korea. However, the case where the assembler switches over from using one company exclusively for ordering some part to parallel ordering is increasing because strikes occurred frequently in 1987 and parts supply's delays, and stops occurred. Also, even if it doesn't satisfy the request of the assembler in the aspect of the price, the quality, or the appointed date of delivery of the part as the demerit of the company with exclusive dealings, there is a restraint that the part must be taken. This exerts an important on the competitiveness of the complete car. Therefore, in recent years, cases of buying a part from parts supplier outside of the "keiretsu" has occurred. When there is more than one parts suppliers, it appears the standard which sorts out a supplier is the quality, the price, the strict observance of delivery of the part in the car assembler. If there is not a big difference in these conditions, it is rational that the automobile assembler chooses the parts supplier which installs an interfirm information network, because the assembler gives and gets accurate data via the computer network to the parts supplier.

Conclusion We have discussed the differences and the similarities in the interfirm networks, comparing the questionnaires answered by for the Japanese parts suppliers and Korean parts suppliers. I will continue this study to process the data in a more statistical way.

Acknowledgements I thank Dr.Okamuro for allowing me to use the data which he collected from Japanese parts suppliers. I also thank for the members of the research group, who are Professor Matsumoto, Professor Kosaka and Dr.Okamuro. I have got many ideas from our discussion and co-research. This paper is one of the results of the collaborative research program which received fund aid by Institute of Information Science in College of Commerce, Nihon University.

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All the following papers and books are Japanese. I have translated the title of the paper into English without confirming it with the original author. Katoh,T.,Kuboto,T., The Entire Scope of the Korean Auto Industry (the revised edition),Nihon Keizai Shinbunsha, 1989. Ikeda,M., The characteristics of the subcontractor

system in Korea -- From the viewpoint of a production system comparison of the Japanese and Korean automobile industries--, Shoukou kinyu, Vol.40,No.9, Shoukou sougou kenkyusho, 1990,pp.321. Ikeda,M., The new spread of the subsystem in the

case of car development, Shoukou kinyu, Vol.42,No.2, Shoukou sougou kenkyusho, 1992,pp.324. Ikeda,M., The car part subcontractor reorganization under a strong yen, Shoukou kinyu, Vol.45,No.1, Shoukou sougou kenkyusho, 1995,pp.5-23. Okarnuro,H., Management Information Networks and Parts Business lnterfirm Relationships in the Automobile Industry, Journal of Information Science Institute in School of Business, Nihon University, Voi.5,1995,pp.69-87. Okamuro,H., The Development of the lnterfirm

Network in the Automobile Industry: An International Comparison and the Evaluation of a Competition Policy, Shoukou kinyu, Vol.44,No.l, Shoukou sougou kenkyusho, 1995.

Graphl Years of the installation of the interfirm network 100 50 0 before 84

85-86

87-88

89-90

91-92

93-94

95-96

5 and more than

No answer

100 80 60 40 20 0 1

2

3

4

5

Graph3 Applications on the interfirm networks

250 200 150 100 50 0 Ordering

Shipping

Payment

assignment,Confirmati request,Payment notice

Production

Design,Technology

management

on of deliveredparts

Graph4 Effects of the interfirm network on managemant

To shortenleadtime

To improve accuracy in data

communication

To facilitate

To reduce stock of

productionplan

productsand materials

To make closer

interfirm relationship

To strengthen our

competitiveness