What Makes Transplants Thrive: Managing The Transfer Of "Best Practice" At Japanese Auto Plants In North America.

For multinational companies, the decision to "transplant" a key organizational capability developed in the home market to another country through foreign direct investment most often reflects the logical next step in its global strategy. As such, it is usually the action of a competitively healthy company-- different from the medical analogue, in which a transplant is undertaken only when the body's original systems are failing.

Nevertheless, the analogy may hold in another way. The transplant of "home base" capabilities to a foreign setting faces a difficult adaptation threshold. The transplant operation must establish these capabilities, and the organizational practices and interaction patterns in which they are embedded, quickly and wholly (or nearly so) so that critical interdependencies among practices are supported. A healthy and strong system must be placed into the new setting all at once to increase survival prospects. Yet the transplant must also adapt to the surrounding local environment or risk rejection by the host.

Both risks of transplantation-- implementing the full system too slowly at the start and failing to adapt to the environment during implementation-- are high in the business context, and many transplants fail. So the question "what makes transplants thrive?" is highly relevant to the globalization prospects of many large multinational companies.

Here we focus on a particular set of transplants and the challenges they faced: Japanese-owned automotive assembly plants in North America. The capability being transferred in this case was "lean production", derived from the Toyota Production System and adopted by most Japanese automakers (with some variation) by the early 1980s. Substantial evidence suggests that practices associated with lean production can yield a substantial competitive advantage in terms of both productivity and quality over more traditional mass production practices found in the West. These practices associated with the successful manufacturing performance of Japanese producers are the outgrowth of unique Japanese environmental conditions including culture, educational systems, unionization structure, religion, history, and geography (Hofstede, 1980, Ralston et al., 1997).

Although these unique conditions explain the distinctive character of Japan's production practices, they are also suggestive of the difficulties that may accompany the transplantation of these practices outside of Japan. Even these difficulties, however, may be less than those faced by non-Japanese corporations who try to adopt these practices in their home markets, given that their superior knowledge of the local environment is offset by their lack of experience and deep knowledge of the organizational capabilities themselves.

In this paper, we compare the implementation of lean production at Japanese-owned automobile plants in North America (hereafter, the "transplants") with home country plants in Japan and with American "Big Three" plants to gain a unique perspective on what makes transplants thrive. These transplants have already been the subject of extensive debate, with some arguing that Japanese auto companies maintain their manufacturing practices upon moving to the U.S. (Kenney & Florida, 1993; Young, 1992), and others arguing that they require extensive modification to work effectively outside of Japan (Zipkin, 1991). By studying the nature and extent of transfer, as well as the modifications and adjustments required to operate lean production systems in the North American context, we gain insight into how the companies that developed this approach managed the transfer of "best practice." We also explore the performance achievements of the transplants to assess their success at replicating the superior manufacturing perf ormance attained in Japan.

Much of the research to date on the Japanese automobile transplants has focused on the work practices at individual auto plants but this study is the first to provide a detailed comparison of a large sample of Japanese transplants with a similar set of plants in Japan, as well as with American-owned plants in North America. Furthermore, we look at a broad range of practices associated with the Japanese production system, including work practices, technology choices, and supplier relations.

The data we report on are from a 1994 survey of automobile assembly plants worldwide, sponsored by MIT's International Motor Vehicle Program (MacDuffie & Pil, 1995). Our sample includes eight (out of eleven) Japanese auto transplants in North America, twelve plants in Japan, [1] and 25 U.S.-owned plants in North America (i.e., the "Big Three" plants of Ford, General Motors, and Chrysler). In addition to the survey data, we have visited about half of these plants for extensive shop-floor tours and interviews with managers (and, in some cases, workers and union officials). We primarily report the survey data here but our interpretations are heavily influenced by what we learned during our fieldwork (for additional detail, please see Pil & MacDuffie, 1999).

HUMAN RESOURCES AND WORK PRACTICES

Work practices and human resources (HR) policies are often considered central to the Japanese production system and hence to the success of Japanese automobile producers (Womack et al., 1990; Abegglen & Stalk, 1985; MacDuffie, 1995; Pil, 1996). The idea that work practices can help firms create competitive advantage is not unique to research on Japan; there is an extensive body of literature about the U.S. (e.g., Kochan, Katz, & McKersie, 1986; Lawler, 1992). However, Japanese work practices were developed in a unique cultural and institutional environment and, as such, the question of their transferability overseas is an interesting one. [2]

Early work in comparative industrial relations argued that the so-called three pillars of the Japanese employment system--life-time employment, enterprise unionism, and seniority wages--have been vital for the success of large Japanese companies (Shimada, 1985). More recent research has emphasized the importance of work organization and skill development in the Japanese production system, including team-based production methods, worker participation in problem solving, job rotation, a small number of job classifications, few distinctions between management and employees, and high levels of training (e.g., Koike, 1989; Pil, 1996; Shimada & MacDuffie, 1999). These latter practices are less dependent on the institutional environment, although an important prerequisite is believed to be a homogenous workforce. In this section, we will consider the importance of each of these sets of practices in turn.

Life-time Employment

Life-time employment is said to be an important underpinning for a whole range of practices, including extensive training, successful team work, and employee commitment to continuous improvement. Typically in Japan, life-time employment is offered only to a set of core employees. Part-time, seasonal, and contract workers are used to handle demand fluctuations and do not receive employment guarantees (Dore, 1986).

In our data, temporary employees make up almost 10% of the workforce in the Japan-based plants but less than 1% of the transplant workforce. With fewer temporary workers, it should be more difficult for the transplants to give employment security guarantees to their core employees. However, all the transplants have offered long-term employment assurances of some kind. The two unionized transplants in our sample have language in their union contracts that guarantees employment security up to the point where this commitment could jeopardize financial viability. The nonunion transplants use similar language to communicate a long-term employment commitment to their core workers, although there is no formal agreement.

As of 1998, none of the transplants have had any layoffs of core employees. During downturns, workers not needed for efficient production typically receive additional training. However, like the Japan plants, the transplants make no employment commitment to their temporary workers. Mazda and Mitsubishi Diamond Star, for example, have already laid off some of these workers.

Enterprise Unionism

The second mainstay of the Japanese employment system is purported to be enterprise unions. All the Japanese plants in Japan have enterprise or company-based unions. In North America, all of the U.S.-owned (Big Three) plants are unionized, whereas only a third of the automobile transplants are unionized; the United Automobile Workers (UAW) represents all of these plants. The non-union status of many of the transplants is clearly a deliberate choice. UAW efforts to initiate campaigns at these transplants have mostly been unsuccessful. Managers at the non-union transplants have actively expressed their desire to retain this status, and there are reports (e.g., Saltzman, 1994) that these transplants actively try to remove pro-union applicants in their screening process. So …