Keiretsu

Definition

Keiretsu refers to a set of companies in Japan that are interconnected through shareholdings, business relationships, and mutual interests. This system emerged in the post-World War II era, aimed at promoting economic stability and collaboration among businesses. Keiretsu networks often include manufacturers, suppliers, and financial institutions that work together to strengthen their competitive position and enhance productivity.

5 Must Know Facts For Your Next Test

1. Keiretsu structures are categorized into two main types: horizontal keiretsu, which connect firms across various industries, and vertical keiretsu, which link companies within the same supply chain.
2. These networks help mitigate risks associated with economic fluctuations by creating stable relationships between firms that support each other financially and operationally.
3. The keiretsu system fosters long-term partnerships that emphasize trust and collaboration over competitive adversarial relationships.
4. Major Japanese corporations like Toyota and Mitsubishi are examples of keiretsu, showcasing how interconnected businesses can thrive in a competitive environment.
5. Despite their advantages, keiretsu structures have faced criticism for potentially stifling competition and innovation within the Japanese economy.

Review Questions

• How does the keiretsu system impact the relationships between businesses in Japan?
  • The keiretsu system fosters strong interconnections between businesses, encouraging collaboration rather than competition. Companies within a keiretsu often share resources, information, and strategic planning, which enhances their collective strength in the marketplace. This cooperative approach leads to greater stability and resilience against economic downturns, as firms can support each other during tough times.
• Analyze how the historical context of post-World War II Japan influenced the development of keiretsu.
  • After World War II, Japan faced significant economic challenges and needed a way to rebuild its economy. The dissolution of zaibatsu created a vacuum for new business structures. Keiretsu emerged as a response, allowing companies to collaborate for mutual benefit. This new system aimed to stabilize the economy by fostering long-term relationships and enhancing productivity among interconnected firms.
• Evaluate the advantages and disadvantages of the keiretsu system on Japan's economy and its global competitiveness.
  • The keiretsu system provides several advantages, such as increased stability for member companies and enhanced efficiency through collaborative practices. However, it also has disadvantages, including reduced competition which can lead to complacency and hinder innovation. As Japan’s economy faced globalization pressures, some argue that keiretsu's insular nature may have limited Japan's adaptability compared to more flexible international competitors.

Related terms

Zaibatsu: Zaibatsu were large family-controlled vertical monopolies in Japan that existed before World War II, which were dismantled after the war but laid the groundwork for the keiretsu system.

Gemba: Gemba refers to the 'real place' in Japanese business culture, emphasizing the importance of going to the actual site of operations to understand processes and issues.

Just-in-Time (JIT): Just-in-Time is a production strategy that aligns inventory levels with actual consumption, which is often utilized by companies within keiretsu to minimize waste and enhance efficiency.