Introduction

Business networks in Japan exist as hierarchies. These have operated in place of horizontal, loosely connected, inter-firm relations and have served the usual functions of networks (Powell 1990). The machinations of bureaucrats and big business representatives have created these hierarchies over time, with the support of politicians. Nevertheless, a number of prominent studies have upheld Japan as a “network society” and as an exemplar of how networks can succeed as an alternative to markets and hierarchies in production and innovation (Dore 1986; Kumon 1992; Morales 1994; Sako 1994). Most have argued that a core element of these networks is long-term trust-based relations (in contrast to spot-market, contractual agreements) between large finished product producers and smaller suppliers. Recent research in Japan belies existing claims about the positive nature of the structure of Japanese business networks (Ayuzawa 1995; Wang 1998).

In this chapter I show that, in contrast to standard portrayals, firms that have been less beholden to parent–child (oya–ko) subcontractor links in the past have been better able to form and sustain productive inter-firm networks – with other SMEs as well as with large firms at home and abroad. In sum, the less linked to parent–child-type subcontractor relations, the more innovative firms are in general, and network-enabled in particular. There also seems to be regional variations in the degree of “civic entrepreneurship” on the part of SME leaders.