The Influence of Customer Scope on Supplier Learning and Performance in the Japanese Automobile Industry

Abstract

Most studies on Japanese supplier-automaker relationships have focused on the nature of the dyadic inter-firm relationship and the performance of the assembler. We examine the relationship between a Japanese supplier's "customer scope strategy" (i.e. number of customers) and the supplier's performance. By analyzing data on 125 suppliers, we found that a supplier with broad automotive customer scope tends to be more profitable and is better off with less exclusive ties. This relationship held even after controlling for supplier size, product type, and the underlying competitiveness/efficiency of each supplier. We argue that a broad customer scope strategy Ieads to superior performance primarily due to learning opportunities. This finding highlights a key liability of vertical integration since integration of inputs often limits the ability of in-house divisions to access new customers. However, there is a limit to the advantages of a broad customer base, since sales to 'unrelated customers' (e.g., non-automotive) did not have a significant impact on performance. In short, there appear to be diminishing returns to customer scope as suppliers add 'dissimilar' customers with requirements farther from their core knowledge domain. Thus, these findings offer empirical support for the knowledge based view of the firm which suggests that the efficient boundaries of firms are driven by knowledge domains/considerations. Our findings also suggest that studies that focus only on the advantages of long-term cooperative relationships may be misleading if interpreted to mean that an exclusive supplier-assembler relationship is the optimal solution for the supplier.