One way that large companies in Japan are being capable of providing employment security and generous benefits for their regular employees is by keeping their labor force limited as well as by maintaining widespread, long term relationship with smaller companies that can’t provide sufficient employment security and strong employment benefits to their employees.

Sometimes, those small companies are direct subsidiaries or “kogaishi” of the large companies or “oyagaisha”, or could also be partially owned by it.

In other instances, small companies might be independently owned, but are still dependent on the large company to different extents.

Long-term sub-contracting arrangements provide economic benefits to small companies while protecting the benefits and job security of the employees in large companies.

During an economic downfall, large companies generally reduce its contracts to outside companies and subsidiaries instead of laying-off its own regular employees. Moreover, subsidiaries provide posts where the parent company can place regular employees who are entitled to managerial positions.

Oftentimes, such posts are used to train employees for higher positions in the parent company. However, it is sometimes considered dead-end positions for exclusive older employees. Such hires unfortunately limit promotion opportunities for the regular employees of the subsidiary who have no courage of moving into the parent company.