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The Second Wave Arrives: Japanese Strategy in the U.S. Auto Parts Market
Over the past five years, the U.S. automotive parts industry has come under increasing competitive pressures. Long a lucrative market for both domestic component producers and OEMs, it has provided significant financial opportunities for the U.S. suppliers in the original market as well as the aftermarket. Now it is an industry under siege. There has been a literal invasion of this market, particularly by the Japanese. The reason for this incursion by the second wave is the presence of major Japanese automobile assemblers in the United States. The invasion is a multifaceted strategy that places the domestic parts producers on the defensive. On a larger scale it illustrates the depth of Japanese strategic planning.
Every corporate executive understands the process of entry into a market. The market is defined, the niche is found, and the entrant knows the degree of competition facing him. Strategies for entry can range from the simple to the complex. The strategies adopted by the competition can also cover a wide spectrum. What is unfolding in the auto parts industry is the result of a very carefully orchestrated long-range strategy. The Japanese have carefully anticipated countermoves by the domestic parts producers and the options available to the U.S. government. By astute planning, the Japanese assemblers and parts suppliers have forced American parts suppliers to conform to the Japanese way of doing business. The assemblers' strategy of dealing with their own "domestic suppliers" in the United States thwarts retaliation and frustrates U.S. parts makers.
In turn, the Japanese parts makers understand the buying motives of the domestic assemblers. They take full advantage of these motives to further their expansion. The domestic suppliers are being forced to play by Japanese rules. The Japanese strategy has been carefully devised to close all avenues of competitive retaliation. It is yet another example of the triumph of long-range perspectives over short-term myopia.
In one phase of the invasion, we have seen the direct importing of auto parts from the Pacific region. If the threat was limited to imports, response to that type of competition would be simple. Prices can be equalized by tariffs and a degree of protectionism developed. Additionally, import quotas may be placed on a product line. However, protectionism, in any form, is simply a method of protecting the weaker producers. It has dysfunctional effects in the market and does little to improve the productivity or quality of those producers. With protection, the marginal producer has no real incentive to improve. However, saving American jobs is always a politically viable and acceptable excuse for protectionism. Three service jobs are needed to replace one manufacturing job.
To a degree, some protection has surfaced in the form of the Voluntary Restraint Agreements seen in the early part of the decade. While the VRAs protected the basic assemblers by limiting the number of Japanese automobiles imported, a limited degree of protection was afforded the suppliers. Since the VRAs had a finite life, the implicit assumption was that the OEMs were going to use that period of protection to become more competitive. This would "level the playing field." Unfortunately for the domestic parts producers, this strategy did not appear to include them.
The Big Three became more cost conscious, yet there is nothing to show they became more cohesive in dealing with their suppliers. Either the industry did not see the threat of Japanese intervention into the parts market, or chose to ignore it. The reaction from the Big Three against foreign-made parts came only when they saw these parts and components being substituted for "genuine _________" parts.
This lack of cohesiveness is a fundamental weakness in the industry. It is the result of an adversarial attitude between manufacturers and suppliers. The major buyers would dictate terms and conditions to the suppliers. In no way was there a real partnership, nor was there a "win-win" environment established between the parts suppliers and the domestic …