The Competitive Status of the U.S. Auto Industry A Study of the Influences of Technology in Determining International Industrial Competitive Advantage (1982) / Chapter Skim
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6 The Sources of Competitive Advantage: Cost and Quality Comparisons
6 The Sources of Competitive Advantage: Cost and Quality Comparisons
Pages 90-108
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From page 90... ...
The trend in import penetration suggests that the market is sensitive to the price-quality package and that product quality is becoming an increasingly important dimension of competition. It also seems clear that production cost and product quality are closely related and that both must be examined in assessing competitive advantage.
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From page 91... ...
The twin issues of cost and quality are central to the future of the domestic auto industry. An assessment of the continued viability of domestic production requires an evaluation of current competitive positions and some analysis of trends in the underlying determinants.
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From page 92... ...
As freight and insurance on Japanese cars averages ii400, the apparent cost advantage to Japanese producers may have been $560 per car in 1979. The actual advantage may have been considerably less, for the above calculations do not take into account energy costs, capital costs, and the costs of other production factors -- some of which are cheaper in the United States than in Japan.3 It is our view that the estimates presented by Katz and his suggestion that actual differences might be even lower constitute an understatement of the current cost advantage of the Japanese.
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From page 93... ...
found a 20-25 percent Japanese advantage in productivity, while examination of specific plants and processes revealed an even larger productivity gap. The wide disparity in estimates of the Japanese productivity advantage underscores the difficulty of making precise calculations, particularly in this context, where the industry structure is different and hard data are relatively scarce.
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From page 94... ...
94 m .' ~ ° E ' ~ ° to E C o o ·~> =` a)
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From page 95... ...
v — hi, Seen in these terms, quality is simply whatever the market defines it to be. A manufacturer can go to great lengths to offer a car with clearly superior rustproofing, but if corrosion protection is not an element of the market's definition of quality, little competitive advantage will be obtained.
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From page 96... ...
This definition focuses attention on the work performed on the assembly line and on the extent to which components and materials meet specifications. But it is clear that the design and thus the specifications themselves are also a significant factor in determining assembly quality.
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From page 97... ...
This is consistent with earlier evidence on assembly quality. In mechanical systems, reliability of some of the domestic and imported products is actually quite close.
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From page 98... ...
SOURCE: Consumer Reports, April 1979. Durability There is little evidence about the long-term durability of Japanese products and thus little basis for comparison.
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From page 99... ...
With their emphasis on quality and performance the major Japanese firms have acquired a kind of "reputation capital" that enhances an already formidable competitive position. Popular accounts of the emergence of Japanese producers as first-rate, worldwide competitors tend to emphasize the impact of new automation technology (e.g., robotics)
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From page 100... ...
avoided head-on competition with Ford in the 1 920s, so the Japanese approach avoided status quo competitive behavior in the 1960s. The domestic market was dominated by the large car, the annual model change, and the "boulevard ride." The new entrants had neither the experience, the production systems, nor the resources to compete on those terms.
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From page 101... ...
These basic determinants -- technology, resources, and management systems -- can be used to compare and contrast production operations. Our analysis of the U.S.-Japanese productivity gap in auto production is organized around seven factors that have been grouped into three categories: process systems (process yield, quality systems)
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From page 102... ...
102 Cal ~4 oo - o Cat o o Cal so Cal .o o sit ho on A · _ U)
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From page 104... ...
The panel was unanimous in giving top billing to a factor we have labeled "process yield" but that is really an amalgam of several management practices and systems related to production planning and control. The "yield" category captures Japanese superiority in operating their processes at a high level of good output over extended periods of time.
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From page 105... ...
annual outpu (good parts per year) Japanese U.S.-Japan dif- Maintenance: Materials: Results: Management ferences are · Preventive/ · Supplier linked · Significantly Systems not extensive operator to final assembly higher yields involvement schedule—press for processes/ · Shifts scheduled for zero defects equipment to allow frequent maintenance Materials: Line Stops: · Just in time · Worker control production—min over qual ity Wl P inventory on I ine · Expose and attack · Expose problems problems FIGURE 6.1 Japanese management systems and the determinants of process yield.
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From page 106... ...
Indeed, it appears that job structure plays an important role in explaining observed productivity differentials. We have already noted two features of the Japanese system (maintenance practices and Jidoka)
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From page 107... ...
G iven the impact of absenteeism and the effects of job structure and the workforce influence in "process yield," it is clear that workforce management must be a significant factor in explaining the Japanese cost advantage. Likewise, an attempt to explain quality adherences would certainly accord a major influence to the work force and its management.
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From page 108... ...
Once the assumptions of perfect competition and homogeneous products are abandoned, the notion of comparative advantage becomes more complex. Instead o f simple, static comparisons of relative costs of production, which are determined by national differences in factor endowments, the characteristics that determine comparative advantage in the more complex models include differentiation of products, innovative capability, and the nature of domestic competition, in addition to production costs.
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