The Kigyo Keiretsu organization and opportunism in the Japanese automobile manufacturing industry

This paper contends that the distinguishing feature of the subcontracting system for the manufacture and distribution of auto-parts in the Japanese automobile manufacturing industry can be explained by the opportunism hypothesis of transaction cost theory. Opportunism may arise when the parts-supplier uses its information advantage to obtain more favorable contract terms with the manufacturer. It is argued that in response to this kind of 'informational opportunism', the automobile manufacturer institutes a special form of vertical arrangement, called the kigyo keiretsu group. The kigyo keiretsu group consists of an association of vertically related parts-makers held together by a high degree of sales and technological interdependence, by partial stock ownership, by interlocking boards of directors and by long-term contract. This study raises the possibility of mitigating opportunism among the kigyo keiretsu group firms throughout the core automaker's shareholdings of its parts-suppliers. © 1998 by John Wiley & Sons (Asia) Ltd.