An electronics firm might produce in-house a refrigerator or microwave oven because such a product is ideally suited to mass production in a large, automated factory. On the other hand, companies that must continually redesign to gain public acceptance for new products would have to retool a production line to accomplish this task. Some of the manufacturers today employ the newest flexible manufacturing systems (FMS) to allow for more freedom in production, but still the retooling process is one many companies want to eliminate. To this end, they farm out much of this business to subcontractors, and these companies in turn are faced with redesigning and producing a product three or four times a year and may subcontract the design or manufacture of a dozen key components to still smaller companies.
It is the large companies that are seen by foreign competitors and that are considered the backbone of the Japanese manufacturing industry and economy, but in reality small and medium-sized companies make up 99 percent of Japanese industry and should be seen as the real foundation on which the Japanese economy rests. The large companies could not exist without the support of millions of unknown small businesses spread throughout the country.
Sakai says that one of the primary reasons Western observers do not know this is because the large Japanese companies do not want them to know it. Subcontractors in the West are independent, but this is not the case in Japan. As soon as the subcontractor accepts the fist contract, it surrenders its freedom and is told what to make, when to put it on line, and how much it will get for it on delivery. The larger company controls the price and can force the smaller company to accept less when there is a money squeeze. The subcontractor has little choice and has a business that is totally dependent on the larger company, and if the smaller company goes out of business, the larger compa