Subcontracting relations in the Korean automotive industry: risk sharing and technological capability

This paper employs a simple principal-agent framework to examine subcontrac ting relations in the Korean automotive industry. The primary objective is to understand how technological capabilities of small component suppliers a ffect the nature of contracts and in turn, are affected by the buyer-suppli er relationship. Kinds of contracts or subcontracting relations are categor ized on the basis of the degree of risk sharing. The risk sharing parameter is estimated and the determinants of risk sharing such as supplier's attit ude towards risk, cost variability and technological capability are explore d. (C) 1999 Elsevier Science B.V. All rights reserved.