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Subject: Economy of Japan, Manufacturing in Japan, Economic history of Japan, Sumitomo Group, Private enterprise in Japan
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A keiretsu系列, lit. system, series, grouping of enterprises, order of succession) is a set of companies with interlocking business relationships and shareholdings. It is a type of informal business group. The keiretsu maintained dominance over the Japanese economy for the last half of the 20th century.[1]

The member companies own small portions of the shares in each other's companies, centered on a core bank; this system helps insulate each company from stock market fluctuations and takeover attempts, thus enabling long-term planning in innovative projects. It is a key element of the automotive industry in Japan.


The corporate governance of Japan dates back to the 19th century, much of which was propelled by the formation of the Meiji Restoration in 1866 by the Japanese government, the same time when the world entered the Industrial Revolution. These formations were termed zaibatsu.[2] Prior to the war, Japan remained dominated by four major zaibatsu: Mitsubishi, Sumitomo, Yasuda and Mitsui. They focused on steel, banking, international trading and various other key sectors in the economy, all of which was controlled by a holding company. Apart from this, they remained in close connection to influential banks that provided funding to their various projects.[3]

The prototypical keiretsu appeared in Japan during the "economic miracle" following World War II. Before Japan's surrender, Japanese industry was controlled by large family-controlled vertical monopolies called zaibatsu. Under this system, large industrial corporations paved the way for banks and trading companies to sit on top of the organizational pyramid controlling all financial operations and distribution of goods.

Collapse of the zaibatsu

Seizure of the zaibatsu families assets, 1946

The zaibatsu had been viewed with some ambivalence by the Japanese military, which nationalized a significant portion of their production capability during World War II. Remaining assets were also highly damaged by the destruction of the war.

Under the American occupation after the surrender of Japan, a partially successful attempt was made to dissolve the zaibatsu. Many of the economic advisors accompanying the SCAP administration had experience with the New Deal program under President Franklin Delano Roosevelt, and were highly suspicious of monopolies and restrictive business practices, which they felt to be both inefficient, and to be a form of corporativism (and thus inherently anti-democratic).

During the holding companies eliminated, and interlocking directorships, essential to the old system of intercompany coordination, were outlawed. Matsushita (which later took the name Panasonic), while not a zaibatsu, was originally also targeted for dissolution, but was saved by a petition signed by 15,000 of its unionized workers and their families.[4]

However, complete dissolution of the zaibatsu was never achieved, mostly because the United States government rescinded the orders in an effort to reindustrialize Japan as a bulwark against Communism in Asia.[5] Zaibatsu as a whole were widely considered to be beneficial to the Japanese economy and government, and the opinions of the Japanese public, the zaibatsu workers and management, and the entrenched bureaucracy regarding plans for zaibatsu dissolution ranged from unenthusiastic to disapproving. Additionally, the changing politics of the Occupation during the reverse course served as a crippling, if not terminal, roadblock to zaibatsu elimination.

Even until today, banks and trading companies have been at the top of the pyramid, having access and control over a portion of each company's part of the keiretsu. Shareholders succeeded over the family control of the cartel. This was made possible with relaxing of Japanese laws whereby holding companies could become stockholding companies.

Types of keiretsu

Cartels and groupings of various kinds are common in Japan.

The two types of keiretsu, horizontal and vertical, can be further categorized as:

  • Kigyō shūdan (企業集団 "horizontally diversified business groups")
  • Seisan keiretsu (生産系列 "vertical manufacturing networks")
  • Ryūtsū keiretsu (流通系列 "vertical distribution networks")

Horizontal keiretsu

The primary aspect of a horizontal keiretsu (also known as financial keiretsu) is that it is set up around a Japanese bank. The bank assists these companies with a range of financial services. The leading horizontal Japanese keiretsu, also referred to as the “Big Six”, include: Fuyo, Sanwa, Sumitomo, Mitsubishi, Mitsui, and Dai-Ichi Kangyo bank groups. Horizontal keiretsu may also have vertical relationships, called branches.

The linkage of these corporate groups through ownership of long-term equity and production activities, leads to emergence of vertical keiretsu.

Jump-style keiretsu

Vertical keiretsu (also known as industrial keiretsu) are used to link suppliers, manufacturers, and distributors of one industry. One or more subcompanies are created to benefit the parent company (for example, Toyota or Honda). Banks have less influence on distribution keiretsu. This vertical model is further divided into levels called tiers. The second tier constitutes major suppliers, followed by smaller manufacturers, who make up the third and fourth tiers. The lower the tier, the greater the risk of economic disruption; moreover, due to low position in the keiretsu hierarchy, profit margins are low.[6]

Nature of the keiretsu

At the epicenter, the "big six" keiretsu is a sogo sosha) deal in imports and exports of an assorted range of commodities throughout the world. Each major company has its own "President's Club", enabling interaction of core members to better help decide their strategies.[3]

The Japanese keiretsu took various preventive measures to avoid takeovers from foreign companies. One of them was "interlocking" or "cross-holding" of shares. This method was established by Article 280 of Commerce Law. By doing so, each company held a stake in the other's company. This helped reduce the pressure on management to achieve short-term goals at the expense of long-term growth. Besides that, interlocking of shares serves as a tool for monitoring and disciplining the group's firms. The level of group orientation or strength between the member companies is determined by the "interlocking shares ratio" (the ratio of shares owned by other group firms to total shares issued) and the "intragroup loans ratio" (the ratio of loans received from financial institutions in the group to total loans received).

Industries such as banking, insurance, steel, trading, manufacturing, electric, gas and chemicals are all part of the horizontal keiretsu web. The member companies follow the "One-Set Policy" whereby the groups avoid direct competition between member firms.

The One-Set Policy:[7]
Industry Mitsui Mitsubishi Sumitomo Fuyo Sanwa DKB
Banking Sakura Bank Bank of Tokyo-Mitsubishi Bank Sumitomo Bank Fuji Bank Sanwa Bank Dai-Ichi Kangyo Bank
Trust Banking Mitsui Trust & Banking Mitsubishi Trust & Banking Sumitomo Trust & Banking Yasuda Trust & Banking Toyo Trust & Banking
Life Insurance Mitsui Mutual Life Meiji Mutual Life Sumitomo Mutual Life Yasuda Mutual Life Fukoku Mutual life, Asahi Mutual life
Marine & Fire Insurance Mitsui Marine & Fire Tokio Marine & Fire Sumitomo Marine & Fire Yasuda Marine & fire Nissan Marine & Fire, Taisei Marine & Fire
Trading Company Mitsui Bussan Mitsubishi Shoji Sumitomo Corporation Marubeni Nissho Iwai Itochu
Steel Japan Steel Works Mitsubishi Steel Manufacturing Sumitomo Metal Industries JFE Steel Corporation Nakayama Steel Works, Nisshin Steel Kawasaki Steel, Kobe Steel
Chemicals Mitsui Toatsu Chemicals Mitsubishi Gas Chemicals Sumitomo Chemicals Kureha Chemical Industries Sekisui Chemicals Asahi Chemical Industries
Shipping Mitsui O.S.K. Lines ("MOL") Nippon Yusen Kaisha ("NYK Line") Kawasaki Kishen Kaisha ("K Line")

In the 1920s, government officials maintained close relations with the zaibatsu, and the roots of their influence still hold strong. The keiretsu have great influence on Japanese industrial and economic policy. The preferential buying habits of the keiretsu kept foreign investors and foreign goods out of their markets, which America criticized as "barriers to free trade". This enabled the keiretsu to enjoy monopoly privileges over the Japanese market, thus maintaining high prices for their goods, as they had full dominance over the price and distribution of products and services throughout the supply side. It is believed that due to this practice, Japan in the late 1980s imported far less than what they should have ($40 billion less as per a report by the Brookings Institution).

In such a work environment, the probability of an employee to remain working in the same company for his entire working life was very high. Moreover, this framework allowed rapid co-operative development (sharing vital information, reduction in cost of R&D and higher quality products) of the keiretsu.[3]

In Japan

During the [8]

The major keiretsu were each centered around one bank, which lent money to the keiretsu member companies and held equity positions in the companies. Each bank had great control over the companies in the keiretsu and acted as a monitoring and emergency bail-out entity. One effect of this structure was to minimize the presence of hostile takeovers in Japan, because no entities could challenge the power of the banks.

Although the divisions between them have blurred in recent years, there have been nine major postwar keiretsu:[7]

Name Bank Major group companies
Mitsubishi Mitsubishi Bank (until 1996)
Bank of Tokyo-Mitsubishi (1996–2005)
Bank of Tokyo-Mitsubishi UFJ (2006– )
Mitsubishi Trust and Banking
Financial: Mitsubishi Corporation, Tokio Marine and Fire Insurance, Mitsubishi Estate, Meiji Mutual Fund
Construction: Pacific Consultants International
Food: Kirin Brewery
Electronics: Mitsubishi Electric, Mitsubishi Precision
Trading and Commerce: Mitsubishi Shoji
Cars: Mitsubishi Motors, Mitsubishi Heavy Industries, Mitsubishi Fuso Truck and Bus Corporation
Petroleum: Nippon Oil, Mitsubishi Oil, Mitsubishi Nuclear Fuel
Precision Machinery: Nikon
Chemicals: Mitsubishi Chemical, Mitsubishi Gas Chemical, Mitsubishi Rayon Co., Ltd., Mitsubishi Materials Corp., Mitsubishi Plastics Industries, Asahi Glass, Nippon Synthetic Chemical Industries (Nippon Gosei)
Paper: Mitsubishi Paper Mills Ltd.
Iron and Steel: Mitsubishi Steel
Shipping: Nippon Yusen Kaisha - "NYK"
Mitsui Mitsui Bank (until 1990)
Sakura Bank (1990–2001)
Sumitomo Mitsui Bank (2001– )
Sony Financial,
Sony Bank
Financial: Mitsui Real Estate, Mitsukoshi, Mitsui Mutual Life, Mitsui Marine & Fire
Food: Nippon Flour Mills, Mitsui Sugar, Suntory
Chemicals: Fuji Photo Film, Mitsui Toatsu Chemicals, Mitsui Petrochemical Industries, Toagosei Chemical Industries, Denki Kagaku Kogyo, Daicel Chemical Industries, Mitsui Pharmaceuticals, Mitsui Toatsu Fertilizers, Mitsui Toatsu Dyes, Toray
Trading and Commerce: Mitsui Bussan
Petroleum: General Sekiyu, Kyokuto Petroleum Industries
Electronics: Sony Corporation, Yaussa Corporation, Ibiden Company, Toshiba
Iron and Steel: Japan Steel Works
Gaming: Sony Computer Entertainment
Entertainment: Sony Pictures Entertainment, Sony Music Entertainment
other Sony subsidiaries, and Media Nusantara Citra
Shipping: Mitsui O.S.K. Lines ("MOL")
Sumitomo Sumitomo Bank (until 2001)
Sumitomo Mitsui Bank (2001– ), Sumitomo Trust and Banking
Financial: Sumitomo Corporation, Sumitomo Corporation of America, Sumitomo Mitsui Financial Group, Sumitomo Trust & Banking, Sumitomo Life Insurance Co., Sumitomo Real Estate, Mitsui Sumitomo Insurance Co., Ltd., Sumitomo Realty & Development Co., Ltd., Presidio Ventures,

Construction: Sumitomo Mitsui Construction Co., Ltd., Sumitomo Densetsu, Sumitomo Osaka Cement Co., Ltd.,
Food: Asahi Breweries
Rail: The Sumitomo Warehouse Co., Ltd., Hanshin Railway, Keihan Railway, Nankai Railway
Trading and Commerce: Sumitomo Corporation
Cars: Mazda
Precise machinery: Sumitomo Heavy Industries, Ltd.,
Electronics: NEC, Sumitomo Electric Industries, Ltd.,
Iron and Steel: Sumitomo Metal Industries, Ltd., Mezon Stainless Steel Fzco., Sumitomo Light Metal Industries, Ltd.,
Chemicals: Sumitomo Chemicals, Nippon Sheet Glass Co., Ltd., Sumitomo Bakelite Co., Ltd., Sumitomo Rubber Industries, Ltd., Dainippon Sumitomo Pharma,
Mining: Sumitomo Metal Mining Co., Ltd.
Forestry: Sumitomo Forestry Co., Ltd.
Infrastructure: Nippon Koei

Fuyo Fuji Bank (until 2000)
Mizuho Bank (2000– )
Yasuda Trust and Banking
Yamaichi Securities
Financial: Yasuda Mutual Life, Yasuda Marine & Fire
Food: Nisshin Flour Milling, Sapporo Breweries
Precision Machinery: Canon, Hitachi, Ricoh
Trading and Commerce: Marubeni
Chemicals: Showa Denko, NOF Corporation, Kureha Chemical Industries, Nippon Sanso, Hitachi Chemical, Asahi Kasei
Rail: Tobu Railway
Vehicles: Yamaha, Nissan
Retail: Matsuya
Dai-Ichi Kangyo (DKB) Dai-Ichi Kangyo Bank (until 2000)
Mizuho Bank (2000– )
Kankaku Securities
Orient Group
Financial: Fukoku Mutual Life, Asahi Mutual Life, Nissan Marine & Fire, Taisei Marine & Fire
Electronics: Fujitsu, Hitachi, Fuji Electric, Yaskawa Electric, Nippon Columbia
Cars: Isuzu, Kawasaki Heavy Industries
Power Generation: Tokyo Electric Power
Petroleum: Showa Shell Sekiyu
Precision Machinery: Asahi Optical
Trading and Commerce: Seibu, Itochu,
Iron and Steel: Kawasaki Steel, Japan Metals, Kobe Steel
Chemicals: Denki Kagaku Kogyo-Mitsui Group, Nippon Zeon, Asahi Denka Kogyo, Sankyo Co., Lion Corporation, Kyowa Hakko Kogyo, Asahi Chemical Industries,
Shipping: Kawasaki Kishen Kaisha - K-Line
Sanwa ("Midorikai") Sanwa Bank (until 2002)
UFJ Bank (2002–2006)
Bank of Tokyo-Mitsubishi UFJ (2006– )
Toyo Trust and Banking
Food: Itoham Foods, Suntory
Rail: Hankyu Railway, Keisei Railway
Steel: Kobe Steel, Nakayama Steel Works, Nisshin Steel
Precision Machinery: Konica Minolta, Hoya Corporation
Petroleum: Cosmo Oil
Electronics: Hitachi, Iwatsu Electric, Sharp Corporation, Nitto Denko, Kyocera
Trading and Commerce: Takashiama, Orix, Nissho Iwai
Chemicals: Ube Industries, Tokuyama Corp, Hitachi Chemical, Sekisui Chemical, Kansai Paint, Tanabe Seiyaku, Fujisawa Pharmaceutical, Daiso Co., Teijin, Unitika Fukusure
Cars: Hitachi Zosen Corporation
Retail: Takashimaya
Cinema: Toho
(Toyota Group)
Tokai Bank
Chuo Trust
Food: Kagome
Cars: Daihatsu, Suzuki Motor, Toyota
Steel: Daido Steel
Precision Machinery: Ricoh
Petroleum: Idemitsu Kosan
Electronics: Ushio Industries
Trading and Commerce: Matsuzakaya
Industrial Bank of Japan, New Japan Securities
Wako Securities
IBJ Securities
Cars: Fuji Heavy Industries (Subaru)
Precision Machinery: Ikegai, Riken
Chemicals: Kuraray

Toyota is considered the biggest of the vertically integrated keiretsu groups.[9] The banks at the top are not as large as normally required, so it is actually considered to be more horizontally integrated than other keiretsu.

The Japanese recession in the 1990s had profound effects on the keiretsu. Many of the largest banks were hit hard by bad loan portfolios and forced to merge or go out of business. This had the effect of blurring the lines between the individual keiretsu: Sumitomo Bank and Mitsui Bank, for instance, became Sumitomo Mitsui Banking Corporation in 2001, while Sanwa Bank (the banker for the Hankyu-Toho Group) became part of Bank of Tokyo-Mitsubishi UFJ.

Generally, these causes gave rise to a strong notion in the business community that the old keiretsu system was not an effective business model, and led to an overall loosening of keiretsu alliances. While they still exist, they are not as centralized or integrated as they were before the 1990s. This, in turn, has led to a growing corporate acquisition industry in Japan, as companies are no longer able to be easily "bailed out" by their banks, as well as rising derivative litigation by more independent shareholders.

Outside Japan

The keiretsu model is fairly unique to Japan. The closest foreign counterpart would be the Korean chaebol, but many diversified non-Japanese businesses groups have been described as keiretsu, such as the Mellon Financial/Mellon family beginning in the late 19th century (roughly the same period they were created in Japan), but they were largely curtailed through anti-trust legislation championed by Theodore Roosevelt in the early part of the 20th century. A form of keiretsu can also be found in the cross-shareholdings of the large media companies throughout most developed nations.[10] These are largely designed to link content producers to particular distribution channels, and larger content projects, such as expensive movies, are often incorporated with ownership spread across a number of larger companies.

Contrarian view

Harvard Law School professor J. Mark Ramseyer and University of Tokyo professor Yoshiro Miwa have argued that the postwar keiretsu are a "fable" created by Marxist thinkers in the 1960s so as to argue that monopoly capital dominated the Japanese economy. They point to the sparsity and tenuousness of cross-shareholding relationships within the keiretsu, the inconsistency in members' relationships with the "main banks" of each keiretsu, and the lack of power and reach of the zaibatsu alumni "lunch clubs" which are often argued to form a core of keiretsu governance.[11]

See also


  1. ^ Keiretsu Definition - What is Keiretsu?
  2. ^ Understanding Japanese Keiretsu
  3. ^ a b c Evolution of Keiretsu and their Different Forms
  4. ^ Morck & Nakamura, p. 33
  5. ^ In his 1967 memoirs, Marshall Plan, setting the "reverse course" in Japan was "the most significant contribution [he] was ever able to make in government." George F. Kennan, Memoirs, 1925-50 (Boston, 1967), 393.
  6. ^ What is Keiretsu?
  7. ^ a b The Keiretsu of Japan
  8. ^ "Japan Again Plans Huge Corporations".  
  9. ^ The Toyota Group, the One and Only Horizontal-Vertical Keiretsu
  10. ^ See Columbia Journalism Review's "Who Owns What" website or They Rule.
  11. ^ Miwa & Ramseyer, 2001

Further reading

  • Masahiko Aoki and Hugh Patrick, The Japanese Main Bank System (1994)
  • Ronald Gilson and Mark J. Roe, 'Understanding the Japanese Keiretsu' (1993) 102 Yale Law Journal 871
  • Yoshiro Miwa and Mark Ramseyer, 'The Fable of the Keiretsu' (2002) 11 J. Econ. & Mgmt. Strategy 169
  • Kenichi Miyashita & David Russell, "Keiretsu: inside the hidden Japanese conglomerates" (McGraw-Hill 1995)
  • Bremner, Brian. (1999, March 15). Fall of a Keiretsu. Business Week, issue 3620, 86-92. Retrieved October 27, 2007, from Academic Search Premier database
  • 'Whingeing: Japanese-American Trade'. The Economist 18 May 1991
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