Introduction

In the 1980s, Japan's keiretsu parts system was singled out as a major reason for the international competitiveness of Japan's auto industry. Manufacturers in Europe and the US realized that high productivity and guaranteed production quality were not only the reasons behind the Japanese success, and that keiretsu transactions with suppliers were a very important contributor.

Japanese automobile manufacturers ordered more parts from external suppliers than those in Europe and the US. By adjusting trading relations with the keiretsu suppliers dynamically, purchasing was managed through a limited number of primary suppliers, and this purchasing system helped to develop and maintain long-term, stable trading relations. In contrast, manufacturers in Europe and the US used different trading structures. While there were differences between individual manufacturers and also between Europe and the US, compared with Japan both regions' industries had a higher ratio of production in-house, at more than 60–80 percent. This was a historical legacy, dating back to Ford's vertical integration of its parts policy starting in 1920, and GM and Chrysler integrating parts supply by buying up subcontract suppliers. The in-house production ratio for mass producers in Europe was only about 50 percent, although the ratio for the luxury-car maker Daimler-Benz was at a similar level to US manufacturers.

The European and US purchase systems functioned relatively effectively in a situation where the auto makers held sway over their own regional markets.