Japanese leading automaker Toyota Motor sometime this year released a brand of Corolla car that featured spare parts made by a German supplier, a development that many traditional suppliers within the Japanese auto parts network - keiretsu, found slight shocking.
The German parts maker, Continental AG, supplied Toyota with a cutting-edge crash prevention system that may become a part of several other Toyota cars to be sold in the US, Europe, and Japan by 2017. Denso Corp had usually supplied auto parts to Toyota, but the later went outside of the traditional Japanese suppliers to contract with a German auto parts supplier.
"Competition in the global automotive industry is becoming fiercer," Toyota President Akio Toyoda said earlier this year. "This is the time when Toyota must change its formation."
German suppliers such as Continental and Robert Bosch GmbH are capable of producing almost all car parts from automatic braking systems to engine software and many more, and are threatening to overtake Japan's parts makers who still remain largely traditional. More so, the German auto parts suppliers have global presence and enjoy better economies of scale, meaning they can provide the newest of auto technology at the lowest prices.
The Keiretsu system of traditional Japanese auto parts makers network is not helping their auto industry where other more ambitious and innovative competitors are concerned.
"Toyota's shift is indicative of changes going on in Japan," said Ulrike Schaede, professor of Japanese business at the University of California, San Diego. "The globalization of Japan's auto parts industry and competitive jockeying mean uncertainty and unpredictability."
Toyota is the world's best-selling auto maker, and still maintains a keiretsu even when the other big auto manufacturers in the country - Nissan and Honda, had stopped doing this. Yet Toyota is trying to make its parts makers global players just like Bosch, making cutting-edge technologies more efficient.
Denso is the biggest supplier of Toyota parts and with a revenue of $35.8 billion this year, while Bosch has a revenue of $37.5 billion in sales and maintaining its position as a global leader. Denso makes about half its revenue from Toyota but Bosch alongside other German auto parts makers have a larger international customers.
"If we can't be competitive" in sourcing parts, said Yasumori Ihara, former Toyota executive and now Aisin Seiki's president, "that means Toyota cars are automatically uncompetitive."