Japanese Subcontracting System

Topics: Video game console, Nintendo, Nintendo 64 Pages: 7 (2325 words) Published: December 1, 2007
In the Japanese economy, it seems that there are many large industrial firms. However, the actual work of those firms is carried out by small and medium subcontractors. Therefore, if the contractors have any problems within the market, they can pass that to their subsidiaries. Subcontracting has always been important source of competitiveness and efficiency. gThe importance of subcontractors is especially great in industries where diverse parts, processing and a high level of technology are required, such as in the general machinery, electrical machinery, motor vehicle and precision machinery industriesh.(Okimoto & Rohlen, P84)

Subcontracting (in Japanese is Shitauke) can not be specified exactly, as it is not clearly defined. However, this word is often used in Japan. Subcontracting can be defined and existed when a company (which is called as a contractor) makes an order with another company (which is called as a subcontractor) for the production of components, parts, assemblies or sub assemblies to be sold by the contractor. These orders might include the processing, transformation or finishing of parts or materials by the subcontractor if the contractor requests for it. Subcontractors might be asked to supply parts of products that are not available at their firm, in this case, it must be either manufactured by the assembly industry, imported from other countries or purchased from other companies. These actions differ on an order basis, according to the buyer. There are also several types of subcontracting.

One of them is called efull capacity subcontractingf; this comes to be being when a firm is not capable of doing something, so that a percentage of total output is regularly subcontracted. •Another type is called especial subcontractingf which means that subcontractors manufacture and supply parts and components permanently. This includes the use of specialised machinery equipment and techniques. •eMarginal subcontractingf is another type of subcontracting, which means that subcontractors receive the orders that are infrequent or small orders. •Another type is called ecost saving subcontractingf which means that because the overheads, tax and expenses in wages and other payment to employees are much lower in subcontractor firms, the costs of production of items are much cheaper. •The last but not least is ecapacity subcontractingf. This is often occurred when a factory overloads its account due to a unexpected increase in demand, machine breakdown and other causes.

For the further distinction in subcontractor system, it could be divided into two categories. •One of them is known as eindustrial subcontractingf. This is where a firm(contractor) places an order with subcontractor for carrying out the specific tasks within its own production process. Those tasks are normally labour skill intensive. •The other subcontracting system is known as ecommercial contractorsf. This is used when the contractor is not taking a part in its actual production process. However, contractor takes the marketing and financing part. In this case the

Kawasaki(1998,p.38)h defines a subcontracting relationship as a contractual relationship in which a large firm asks a small firm to conduct a commissioned work(producing parts, components, or finished products) under a dominant positionh. Subcontracting is seemed to be a long term relationship between contractor and subcontractor. Only one transaction is not seen as a subcontracting arrangement. Moreover, relationship might include distinctive subcontractor control, risk sharing arrangements and technology diffusion mechanism. These are known as (Uekusa 1987,p.500) gKanban systemh. Nevertheless, it does not mean a subcontractor can not have multiple clients. Some subcontractors might have multiple clients and in addition, financial links could be observed.

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