The Japanese automobile industry was a very successful industry in the 1960s and 1970s, and partly through its exponential growth, Japan earned the enviable title of an economic miracle. Industry leaders attributed their success to a particular government industrial policy - The Provisional Act for the Promotion of the Machinery Industry (abbreviated as Kishinho in Japanese). The Kishinho was legislated in 1956 and remained in force until 1970. The correlation between this legislation and the phenomenal growth of the car industry speaks through statistics. Car production in Japan rose from 0.5 trillion yen in 1956 to 3.5 trillion yen in 1971 - a seven fold increase in fifteen years. The rise in automotive parts production is equally spectacular, from roughly 0.25 trillion yen to 2 trillion yen in the same period – an eight times increase.
Toyota and Nissan both benefited from the 1956 legislation. Both firms achieved similar growth rates and levels of operating profit in this fifteen year period. It is commonly believed that both firms had a similar governance structure, an inter-firm network that is supposedly superior in delivering economic efficacy compared with vertical integration, which was the governance structure adopted by the Big Three in the U.S. before the 1980s. The objective of this paper is to ascertain whether both Toyota and Nissan had a similar governance structure during this fifteen year period.
Data/Methods
Data provided in each assembler’s Annual Reports 1956 to 1970 are used in a regression analysis, supported by descriptive statistics.
Results
Toyota and Nissan had each adopted a different governance structure in response to the same incentives provided in the industrial policy. Toyota developed an inter-firm network during this fifteen year period, whereas Nissan remained vertically integrated.