Academic journal article I.D.E. Occasional Papers Series

Interfirm Relations under Late Industrialization in China: Conclusion

Academic journal article I.D.E. Occasional Papers Series

Interfirm Relations under Late Industrialization in China: Conclusion

Article excerpt

The case of the motorcycle industry in China suggests the existence of characteristics common to the development process of other Chinese manufacturing industries, in particular mass production industries that fully utilize assembling and processing of parts. This chapter, by summarizing the points of contention of the study as a whole, will examine these characteristics and the factors that have brought them about, as suggested by this study.

1. What Caused China's Motorcycle Industry to Adopt an Isolated-Type System?

Although motorcycle markets in many Asian countries have been dominated by Japanese firms and their affiliates, in China alone, indigenous makers hold an overwhelming market share vis-à-vis foreign makers. This suggests that in China, there are certain significant factors that have directed the industrial development of the country in a different direction from that of other Asian countries.

The competition among China's indigenous makers is qualitatively very different from that of foreign firms. Part of the difference can be found in the isolated-development-type supplier system as opposed to the united-development-type of Japanese and Japanese-affiliated firms.1

Following the framework and the findings of this study, the reasons that drove the Chinese supplier system toward an isolated type rather than a united type can be summarized as follows:

(1) Power relations among agents that make it difficult to carry out coordination for cooperative efforts: Inadequate capability on the part of makers to lead suppliers and strong capability among suppliers to develop their business in comparison with the former.

(2) Factors that make it difficult to generate rent through cooperative efforts between agents: Demand for low-price products, a market that tolerates low-quality products (including weak government supervision), "minor-change-type development competition," and weak complementarity in capabilities between makers and suppliers (weak incentives to nurture suppliers).

(3) Factors that impede agents to make a commitment to cooperative efforts: rampant opportunistic behaviors, an immature public system for ensuring orderly market transactions, which tolerates opportunism, and the strong substitutability of business partners.

With those factors in the background, each agent, rather than implementing technological accumulation by sharing knowledge with other agents, characteristically aims for individual development while paying due attention to risk management. These characteristics were particularly prominent in the latter half of the 1990s.

After 2000, in the wake of the sophistication of the market environment and the growing capabilities of firms, the transaction system has changed its direction toward one with a greater degree of cooperation. However, it is still essentially different from the Japanese system, with its high degree of integration.

2. Characteristics of China's Industrial Development Process

The study is based on the premise that an industry may follow a variety of development paths depending on the time and region. The study assumes that the very different interfirm organizations of China and Japan are one of the main complementary elements that comprise a unique industrial development process and support the industry's characteristic competitive advantage in each country.

As discussed in the Introduction, let us assume that in a late-industrializing economy, the central players in a certain industry upgrade their technological capabilities in three dimensions, namely: (1) expansion of quantitative scale, (2) upgrading of product quality, and (3) upgrading of the degree of product novelty (Ernst, Mytelka, and Ganiatsos 1998; Amsden 2001). A comparison of the development path of the motorcycle industry in Japan and China reveals that Chinese makers expanded their scale of mass production more rapidly. …

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