In the age of intense global competition, many Japanese auto makers have overhauled the Keiretsu, the long−term and strong tie between an auto maker and its parts suppliers. In the process, many companies have adapted global sourcing and the module manufacturing system. This paper shows what impacts they have had on auto parts suppliers in the Chugoku region, based on interviews conducted at two auto makers and one auto parts supplier in 2002. There are two types of outsourced parts. One are parts designed by auto makers themselves, and the other are parts designed by part suppliers and approved by the auto makers. The former type of parts are often simple but hard to transport because of their weight or size. The latter type of parts are often high in value and easy to transport. As for global sourcing, auto makers have made more progress in sourcing the latter type. As a result, many high value parts have been manufactured outside the region. The module manufacturing system involves the assembly of a group of parts by the part supplier. These core suppliers, which assemble parts sent from other suppliers, are required to have a higher capacity of technological development than ever before. As a result of this, Tier 1 suppliers, which supply their parts to auto makers directly, are dividing into core suppliers and Tier 2 suppliers, which supply their parts to Tier 1 suppliers. Thus, the module manufacturing system has modified the vertical relation among local parts suppliers. Finally, it is often said that the intense competition in auto industry promotes mergers, but this is not the case in the Chugoku region. Many local suppliers are owned by the founding family, and they often lack the mutual trust which is crucial to mergers.