Fall of a Keiretsu
... Fall of a Keiretsu Written by Dmitriy Kozlov 1. What is keiretsu? Keiretsu is a Japanese term for a set of companies with interlocking business relationships and shareholdings. There are two types of keiretsu – horizontal keiretsu and vertical keiretsu. The horizontal or “financial” keiretsu consist of several corporate groups with close-knit relationship among members with powerful bank in their core. ... The vertical or “distribution” keiretsu is based on vertical relationships among members, controlling this way prices, products, services and so on from the production to the consumer. A vertical keiretsu can be more sophisticated – it can be a part of horizontal keiretsu and consists of companies with independent vertical groups inside. Generally a bank influences less distribution keiretsu, because they lay on the ground of subcontractors working as “buffer” for the head firm in case of economics troubles. ... Another type of keiretsu with vertical relationship is the “manufacturer” keiretsu, which integrates pyramid of suppliers and component manufacturers in one structure. This approach allows such kind of keiretsu behave like a single company to share technology, control development costs, make long-term supply agreement and so on. ... How does the keiretsu of Japan differ from corporate structures in the US? The main differences of keiretsu: - Joint ventures among group firm; - Extensive intra-group purchasing; - Loosely integrated group decision making; - Based on the one bank in the core of the group; - Suppliers and manufacturers are inside of the group; - JIT (just-in-time) system as a consequence of previous clause; - Lifetime employment system; - Close relationship between corporation and government; - Nontransparent financial policy and information. TOYOTA - A vertical Keiretsu within a horizontal one (SOURCE: Ohsono, 1995) The group clustered around Toyota Motors is by far the largest group of automobile related businesses in Japan with annual sales amounting to more than 10 trillion Yen. Except for the ‘Big Six’ conglomerate Keiretsu, Toyota is the most powerful company grouping in Japan.