Keiretsu

Keiretsu refers to the Japanese form of corporate organization that involves a grouping or family of affiliated firms that form a tight-knit alliance and work to each other's mutual benefit. They became prevalent after World War II, prior to which the industries were controlled by large family-controlled monopolies called Zaibatsu. The companies were reintegrated after the war through share purchases to form horizontally integrated alliances across many industries. The companies also bought from each other, making the alliances vertically integrated as well.

Keiretsu exist in a wide array of markets, including the capital, primary goods, and components parts markets. The relationships are usually anchored around a bank, and by cross-ownership of equities in companies. The executives of these companies sit on each other's boards, share information, and set prices and overall strategies similar to the operation of cartels. Many have attributed the global successes of Japanese firms in new markets to this system of operation.

Although the divisions have blurred in recent years, the six major industrial groups (and major companies comprising the group) are Mitsubishi (Mitsubishi Electric, Kirin Brewery, Nippon Oil, Nikon, etc.), Mitsui (Fuji Photo Film, Mitsui Real Estate, Mitsukoshi, Sun-tory, Toshiba, Toyota, etc.), Sumitomo (Asahi Breweries, Hanshin Railway, Mazda, NEC, Sumitomo Real Estate, etc.), Fuyo (Canon, Hitachi, Matsuya, Nissan, Ricoh, etc.), Dai-Ichi-Kangyo (Fujitsu, Hitachi, Isuzu, Itochu, Tokyo Electric Power, etc.), and Sanwa (Hankyu Railway, Kobe Steel, Konica Minolta, Kyocera, Takashi-maya, Toho, etc.). Annual revenues for each conglomerate are in the hundreds of billions of dollars.

The major advantage of a Keiretsu system is that the vertically integrated alliances between suppliers and manufacturers are closely integrated, resulting in suppliers receiving long-term contracts. Research has also indicated an optimal balance of supplier and buyer power in these systems and superior discipline down the network. Finally, the use of a just-in-time (Kanban) system also ensures high quality products, a major competitive advantage for most Japanese (particularly the automobile) industries.

The major criticisms of this system include complaints by foreign firms about the collusion of the system with Japanese governmental authorities, who try to protect their local businesses, hence violating antitrust laws. Moreover, the system creates a vertical chain of affective relationships between producers, wholesalers, and retailers that outside firms find difficult to penetrate. Finally, the Japanese channels are longer, more expensive to operate, and complex, thus imposing additional surcharges on the customer because of the inefficiencies—the only reason to continue having them is to exclude foreign competitors.

Even though the Keiretsu system is physically rooted in the Japanese landscape and national character, [Page 970]businesses in other parts of the world like the Tata Group (India) and the Virgin Group (United Kingdom) are described as such, even though these groups exhibit looser equity ownership connections than their Japanese counterparts. Keiretsu in many ways are also similar to Chaebol, or South Korean conglomerates, although current Western conglomerates like General Electric and even pre-World War II Zaibatsu in Japan appear to be more comparable.