The vertical keiretsu advantage in the era of Westernization in the Japanese automobile industry: investigation from transaction cost economics and a resource-based view

Vertical keiretsu are specific buyer-supplier relationships that define the structure of firms in the Japanese automotive industry. However, during Japan's economic recession, firms started restructuring their relationships, which raised the question of whether automakers maintained transactions with their keiretsu suppliers or pursued new transactions outside of keiretsu. Applying two fundamental theories, transaction cost economics and the resource-based view, we investigate parts transactions in the Japanese automobile industry, and show that keiretsu suppliers maintained business with their keiretsu automakers. Our results suggest long-term vertical corporate linkage endows suppliers with a competitive advantage, even when arm's length transactions prevail in the industry.