Complementary and Cost Reduction: Evidence from the Auto Supply Industry
Author(s)
Helper, Susan
Date Issued
July 11, 2002
Series/Report no.
IMVP;154a
Abstract
Over the last 20 years, the success of Japanese manufacturing firms has brought
renewed attention to the importance of cost reduction on existing products as a source of
productivity growth. This paper uses survey data and field interviews from the auto supply
industry to explore the determinants of average-cost reduction for a sample of 171 plants in the
United States and Canada between 1988 and 1992. The main result is that the determinants of
cost reduction differ markedly between firms which had employee involvement programs in 1988
and firms that did not. The two groups of firms achieved equal amounts of cost reduction. but did
so in very different ways. Firms with employee involvement saw their costs fall more if they also
had "voice" relationships with customers and workers. Firms without such involvement gained no
cost-reduction benefit fkom these programs; instead, their cost reduction success was largely a
fiction of increases in volume. These results provide support for Milgrom and Roberts's concept
that certain production practices exhibit complementary.
Subjects
cost reduction
cost reduction
complementary
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