Knowledge Complexity and Industrial Agglomeration in the Japanese Auto Parts Industry

Abstract

With a special focus on the automobile industry in Japan, this study quantifies the knowledge characteristics of auto parts suppliers and the products they produce, empirically analyzing the relationship between the level of suppliers' knowledge sophistication and geographical location. A complexity index based on a network science approach was applied to measure the sophistication of knowledge retained by suppliers and that required to produce products. The results demonstrate a wide variation in knowledge sophistication of suppliers and products. The heterogeneous nature of sophistication calls for caution when engaging with companies classified as transportation equipment manufacturers as if they are part of a homogeneous automobile industry. Moreover, the production bases for highly sophisticated products, compared to those for less sophisticated products, tend to be more agglomerated in a narrow area and lack overall location dispersion. This implies that knowledge spillover-effects associated with agglomeration play an important role in product innovation activities that require more sophisticated knowledge.