Initiative for Relation-Specific Skills

We conducted an empirical analysis on the hypothesis raised by (Asanuma, Journal of the Japanese & International Economies 3:1–30, 1989; Asanuma, B. (1992). Japanese manufacturer-supplier relationships in international perspective. In P. Sheard (Ed.), International adjustment and the Japanese economy. St. Leonards, Australia: Allen & Unwin, 99–124) on auto-parts procurementProcurement in Japan. The hypothesis proposes a new classification for auto-parts makers as per their degree of initiativeInitiative in product and process design. The initiativeInitiative results in “relation-specific skills”Relation-specific skill(s) acquired by the sub-contractors in relation to auto manufacturers in the first tier. Among the responses to the hypothesis, (Milgrom and Roberts, Economics, organization & management, Prentice Hall, 1992) and (Holmström and Roberts, Journal of Economic Perspectives 12:73–94, 1998) focused on a role of the supplier association in the Japanese hierarchy system, where communication among suppliers alleviates opportunistic misbehavior by automakers. This chapter, instead of the reputational role of the association, takes an alternative stand on the technology cooperationCooperation association from the property rightsProperty right(s) theory, especially a general setup of (Whinston, Journal of Law, Economics, & Organization 19:1–23, 2003). Participation in the associations should be considered as non-contractible investmentsNon-contractible investment(s) for the relation-specific skillRelation-specific skill(s). The empirical implications of some specified models concern the effects on the vertical integrationIntegration likelihood of the importanceImportance of both buyers’ or sellers’ non-contractible investmentsNon-contractible investment(s) and specificitySpecificity in the acquired relation-specific skillsRelation-specific skill(s). We estimate an equation of vertical integrationIntegration wherein the determinants are dummy variables of the parent firm and the subsidiary’s participation in the cooperationCooperation associations, and variables representing the degree of their relation specificitySpecificity. The significance and signs of these variables suggest that other than a model of exogenous acquisition of relation-specific skillsRelation-specific skill(s), a model can also be applicable to Japanese auto parts supplier-manufacturers, where it is not the manufacturers’ but the suppliers’ investments that create their own relation-specific skillsRelation-specific skill(s) through association activities. The Asanuma hypothesis turns out to be alive.