Markets Nurture Relationships: Changing Relationship Patterns of Japanese GTCs in the Post-bubble Era

Abstract

Japanese General Trading Companies (GTCs) have faced significant changes in their business environment, with more open markets and more internationally experienced trading partners. We investigate here some of the specific contractual changes that the firms have made in order to respond to, and more importantly take advantage of, the changed environment. The literature in economics, organization theory and political science has paid insufficient attention to the effects of change on the nature of business relationships. Firms are usually modelled as able to change very quickly, or alternatively—and sometimes simultaneously—incapable of adjusting to new environments. GTCs can use the change to craft new relationships and, however imperfectly, adjust to the new environment. Their accumulated relation-specific information is the source of flexibility. Using information from two sets of interviews of trading company managers, we show that seemingly out-of-date relationships can have embedded in them information-based resources that allow these institutions to take advantage of new situations. Newly developed and more open markets can paradoxically lead to new and even more complex trading company relationships. Markets and hierarchies are not always substitutes. Trading firms use their ‘out-of-date’ relationship and information resources in the new environment as well.