Editing Keiretsu

{{Short description|Type of conglomerate in Japan}}
{{Use dmy dates|date=January 2021}}
{{Italic title}}
A {{nihongo|'''''keiretsu'''''|[[:ja:日本語から英語への借用#J.2C K.2C L|系列]]|extra=literally ''system'', ''series'', ''grouping of enterprises'', ''order of succession''|lead=yes}} is a set of [[company|companies]] with interlocking business relationships and [[shareholder|shareholdings]] that dominated the [[Economy of Japan|Japanese economy]] in the second half of the 20th century. In the legal sense, it is a type of [[business group]] that is in a loosely organized alliance within Japan's business community.<ref>{{Cite book|last=Snyder|first=Francis G.|year=2002|title=Regional and Global Regulation of International Trade|location=Oxford|publisher=Hart Publishing|url=https://archive.org/details/regionalglobalre00snyd|url-access=limited|isbn=1841132187|pages=[https://archive.org/details/regionalglobalre00snyd/page/n132 113]}}</ref> It rose up to replace the ''[[zaibatsu]]'' system that was dissolved in the [[occupation of Japan]] following the [[Second World War]].<ref name="aoki1988">{{cite book|author=Aoki, Masahiko|year=1988|title=Information, Incentives and Bargaining in the Japanese Economy: A Microtheory of the Japanese Economy|location=Cambridge|publisher=Cambridge University Press|doi=10.1017/CBO9780511571701|isbn=9780521354738|url=https://www.cambridge.org/core/books/information-incentives-and-bargaining-in-the-japanese-economy/A79FB9290DC176DF8BC8F4DE33067CE2}}</ref> Though their influence has shrunk since the late 20th century, they continue to be important forces in Japan's economy in the early 21st century.

The members' 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 projects.

==Origins==
The prototypical ''keiretsu'' appeared during the [[Japanese economic miracle]] which followed World War II, amid the dissolution of [[Family business|family-controlled]] [[vertical monopoly|vertical monopolies]] called ''[[zaibatsu]]''.

The ''zaibatsu'' had been at the heart of economic and industrial activity within the [[Empire of Japan]] since Japanese industrialization accelerated during the [[Meiji era]].<ref name="addicott2017">{{cite journal|author=Addicott, David A.C.|year=2017|title=The Rise and Fall of the Zaibatsu: Japan's Industrial and Economic Modernization|journal=Pepperdine University|url=https://digitalcommons.pepperdine.edu/cgi/viewcontent.cgi?article=1259&context=globaltides}}</ref> They held great influence over Japanese national and foreign policies which only increased following the Japanese victories in the [[Russo-Japanese War]] of 1904–1905<ref name="addicott2017"/> and [[World War I]].<ref>{{cite web|author=Encyclopædia Britannica|title=Zaibatsu|url=https://www.britannica.com/topic/zaibatsu}}</ref> During the [[inter-war period]] the ''zaibatsu'' aided [[Japanese militarism]] and benefited from their conquest of East Asia by receiving lucrative contracts.<ref name="addicott2017"/>

[[Image:Seizure of the Zaibatsu families assets.JPG|right|250px|thumb|Seizure of the ''zaibatsu'' families' assets, 1946]]
After the [[surrender of Japan]] the [[Supreme Commander of the Allied Powers|Allied occupation forces]] partially attempted to dissolve the ''zaibatsu'' which had worked closely with the militarists during the first half of the 20th century and during the war.<ref name="addicott2017" /> However, the United States government later rescinded those orders in an effort to reindustrialize Japan as a bulwark against [[communism]] in Asia, so the ''zaibatsu'' were never completely dissolved.<ref>In his 1967 memoirs, [[George F. Kennan]] wrote that aside from the [[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.</ref>

==Types==
The two types of ''keiretsu'', '''horizontal'''  and '''vertical''', can be further categorized as:
* {{nihongo|''Kigyō shūdan''|企業集団|"horizontally diversified business groups"}}
* {{nihongo|''Seisan keiretsu''|生産系列|"vertical manufacturing networks"|lead=}}
* {{nihongo|''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 through [[cross shareholding|cross-shareholding]] relationships with other companies. 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 Group|Fuyo]], [[Sanwa Group|Sanwa]], [[Sumitomo Group|Sumitomo]], [[Mitsubishi]], [[Mitsui]], and [[DKB Group]]. Horizontal ''keiretsu'' may also have vertical relationships, called branches.

Horizontal ''keiretsu'' peaked around 1988, when over half of the value in the Japanese stock market consisted of cross-shareholdings. Since then, banks have gradually reduced their cross-shareholdings. The Japanese corporate governance code, effective from June 2015, requires listed companies to disclose a rationale for their cross-shareholdings. Partly as a result of this requirement, the four Japanese "megabanks" descended from the six major ''keiretsu'' banks (namely [[Mitsubishi UFJ Financial Group]], [[Sumitomo Mitsui Financial Group]], [[Sumitomo Mitsui Trust Holdings|Sumitomo Mitsui Trust Group]] and [[Mizuho Financial Group]]) have indicated plans to further reduce their balance of cross-shareholding investments.<ref>{{cite news|last1=Fukase|first1=Atsuko|title=Mitsubishi UFJ Joins Crusade on Cross-Shareholding|url=https://www.wsj.com/articles/mitsubishi-ufj-joins-crusade-on-cross-shareholding-1438345700?tesla=y|access-date=7 August 2015|work=Wall Street Journal|date=31 July 2015}}</ref>

Membership in horizontal ''keiretsu'' is often loose and often not something considered in day-to-day decision making by its members.<ref>{{cite journal |last1=Hoshi |first1=Takeo |title=Erratum: The Fable of the Keiretsu: Urban Legends of the Japanese Economy |journal=Social Science Japan Journal |date=2009 |volume=12 |issue=1 |pages=189–192 |doi=10.1093/ssjj/jyp013 |jstor=30209839 |url=http://www.jstor.org/stable/30209839 |access-date=24 April 2024}}</ref>

===Vertical ''keiretsu''===
Vertical ''keiretsu'' (also known as industrial or distribution'' keiretsu'') are used to link suppliers, manufacturers, and distributors of one industry. Banks have less influence on vertical ''keiretsu''. Examples of this type include [[Toyota]], [[Toshiba]], and [[Nissan]].<ref name=":0">{{Cite book|title=Manufacturing: Design, Production, Automation, and Integration|url=https://archive.org/details/manufacturingdes00benh|url-access=limited|last=Benhabib|first=Beno|date=2003|publisher=Marcel Dekker, Inc.|isbn=0824742737|location=New York|pages=[https://archive.org/details/manufacturingdes00benh/page/n550 19]}}</ref> One or more sub-companies, arranged in tiers of importance, are created to benefit the parent company. Major suppliers form the second tier beneath the parent, and smaller manufacturing companies make up the third and fourth tiers. Those at the highest levels are most profitable, and most insulated from fluctuations in the market.<ref>{{Cite web|title=What is Keiretsu?|date=6 April 2019 |url=https://www.tech-faq.com/keiretsu.html|access-date=2022-02-03|language=en-US}}</ref>

Some vertical ''keiretsu'' may belong to one or another horizontal ''keiretsu''.<ref name=":0" /> Some vertical ''keiretsu'' are [[family business]]es, such as the [[Hitotsubashi Group|Hitotsubashi/Shogakukan]], [[Kodansha|Otowa/Kodansha]] and [[APA Group (Japan)|APA]] groups. Studies have found these vertical ''keiretsus,'' particularly those that belong to the same horizontal ''keiretsu'', are more likely to form alliances than the other types or even those companies where one or two have ''keiretsu'' affiliations.<ref>{{Cite book|title=Japan's Network Economy: Structure, Persistence, and Change|url=https://archive.org/details/japansnetworkeco00linc|url-access=limited|last1=Lincoln|first1=James R.|last2=Gerlach|first2=Michael L.|date=2004|publisher=Cambridge University Press|isbn=0521453046|location=Cambridge|pages=[https://archive.org/details/japansnetworkeco00linc/page/n376 362]}}</ref> Vertical ''keiretsu'' is considered an effective and competitive organizational model in the car industry.<ref>{{Cite book|title=Governance in the Business Environment|last1=Aras|first1=Guler|last2=Uddin|first2=Shahzad|date=2011|publisher=Emerald Group Publishing|isbn=9780857248770|location=Bingley, UK|pages=101}}</ref>

== History ==
During the [[occupation of Japan]], under the [[Supreme Commander of the Allied Powers]], General [[Douglas MacArthur]], a partially successful attempt was made to dissolve the ''[[zaibatsu]]'' in the late 1940s. Sixteen ''zaibatsu'' were targeted for complete dissolution, and 26 more for reorganization after dissolution. However, the companies formed from the dismantling of the ''zaibatsu'' were later reintegrated.  The dispersed corporations were reinterlinked through share purchases to form [[Horizontal integration|horizontally integrated]] alliances across many industries. Where possible, ''keiretsu'' companies would also supply one another, making the alliances vertically integrated, as well.  In this period, official government policy promoted the creation of robust trade corporations that could withstand heavy pressures from intensified trade competition.<ref>{{cite news |title=Japan Again Plans Huge Corporations |agency=[[Associated Press]] |url=https://www.nytimes.com/1954/07/17/archives/japan-again-plans-huge-corporations.html?sq=ogasawara&scp=46&st=p |newspaper=[[The New York Times]] |date= 17 July 1954 |access-date=4 July 2011}}</ref>

The major ''keiretsu'' were each centered on 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 takeover]]s 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 eight major postwar ''keiretsu''.<ref name="autogenerated1">{{Cite web|title=The Keiretsu of Japan<!-- Bot generated title -->|url=http://www.sjsu.edu/faculty/watkins/keiretsu.htm|url-status=dead|archive-url=https://web.archive.org/web/20210301183653/https://www.sjsu.edu/faculty/watkins/keiretsu.htm|archive-date=1 March 2021|access-date=24 September 2011}}</ref>

[[Toyota]] is considered the biggest of the [[Vertical integration|vertically integrated]] ''keiretsu'' groups, although the company is rather considered as a "emerged" ''keiretsu'', along with [[Softbank]], [[Seven & I Holdings Co.]]<ref>{{Cite web |url=http://www.sjsu.edu/faculty/watkins/toyota.htm |title=The Toyota Group, the One and Only Horizontal-Vertical Keiretsu<!-- Bot generated title --> |access-date=29 February 2008 |archive-date=23 February 2021 |archive-url=https://web.archive.org/web/20210223180443/https://www.sjsu.edu/faculty/watkins/toyota.htm |url-status=dead }}</ref> 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 [[Lost Decades|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 Japanese 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 2000s. For instance, many troubled Japanese companies are faced with a new reality in which receiving financial support from their main banks is getting harder and unlikelier than ever before. The companies include [[Sharp Corporation]] and [[Toshiba]], both iconic Japanese corporations that were forced to accept foreign investment in the aftermath of financial difficulties in the 2010s.

This changed environment, 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 suit|derivative litigation]] by more independent shareholders.

===United States–Japan bilateral relationship===
{{see also|Trans-Pacific Partnership negotiations}}
By April 2015, [[Office of the United States Trade Representative|U.S. Trade Representative]] [[Michael Froman]] and Japanese Economy Minister [[Akira Amari]], representing the two largest economies of the 12-nation [[Trans-Pacific Partnership]], were involved in bilateral talks regarding agriculture and auto parts, the "two largest obstacles for Japan."<ref name="Bloomberg_US_Japan">{{citation |title=Japan, U.S. Seek Trade Pact Deals on Rice, Auto Parts |url=https://www.bloomberg.com/news/articles/2015-04-19/japan-u-s-seek-agreement-on-rice-auto-parts-for-trade-pact |work=Bloomberg |date=19 April 2015 |access-date=8 August 2015}}</ref> These bilateral accords would open each other's markets for products such as rice, pork and automobiles.<ref name="Bloomberg_US_Japan" />

During the two-day ministerial TPP negotiating session held in Singapore in May 2015, veteran US negotiator [[Wendy Cutler]] and Oe Hiroshi of the Japanese [[Ministry of Foreign Affairs (Japan)|Ministry of Foreign Affairs]] held bilateral trade talks regarding one of the most contentious trade issues, automobiles. American negotiators wanted the Japanese to open their entire ''keiretsu'' structure, a cornerstone of the Japanese economy, to American automobiles. They wanted Japanese dealer networks such as Toyota, Nissan, Honda, Mitsubishi, and Mazda to sell American cars.<ref name="Forbes_US_Japan">{{citation |title=Japan Auto Imports, TPP, and the Price of American 'Leadership'|url=https://www.forbes.com/sites/stephenharner/2014/05/20/japan-auto-imports-tpp-and-the-price-of-american-leadership/ |date=20 May 2015 |access-date=8 August 2015 |author=Stephen Harner |work=Forbes}}</ref> The successful conclusion of these bilateral talks was necessary before the other ten TPP members could complete the trade deal.<ref name="Bloomberg_US_Japan" />

===Outside Japan===
The ''keiretsu'' model is fairly unique to Japan. However, many diversified non-Japanese businesses groups have been described as ''keiretsu'', such as the [[Virgin Group]] (UK), [[Tata Group]] (India),<ref>{{cite book|title=Modern Organisational Governance|page=77|first=David|last= Crowther|year=2017|publisher=Emerald Publishing Limited}}</ref> the Colombian [[Grupo Empresarial Antioqueño]] and the Venezuelan [[Grupo Cisneros]].

The automotive and banking industries have created broad cross-ownership networks across nations, but the national companies are normally independently managed. Banks cited as being central to ''keiretsu''-like systems include [[Deutsche Bank]] and some ''keiretsu''-like systems, generally referred to as [[trust (business)|trusts]], were created by investment banks in the United States such as [[JP Morgan]] and [[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 [[competition law|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.<ref>See ''[[Columbia Journalism Review]]''{{-'}}s [https://www.cjr.org/tools/owners/ "Who Owns What"] {{Webarchive|url=https://web.archive.org/web/20070423133215/https://www.cjr.org/tools/owners/ |date=23 April 2007 }} website or [http://www.theyrule.net/ They Rule].</ref> 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 [[Marxism|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.<ref>{{Cite web|url=http://www.law.harvard.edu/programs/olin_center/papers/pdf/316.pdf|title=Miwa & Ramseyer, 2001|accessdate=14 March 2023}}</ref> This contrarian view has been disputed.<ref>{{Cite web|url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2257913|title=A Skeptic's Guide to Miwa and Ramseyer's 'The Fable of the Keiretsu'|accessdate=29 December 2024}}</ref>

==See also==
*''[[Zaibatsu]]''
**''[[Chaebol]]'', family-owned conglomerates similar to ''zaibatsu''
*[[Four big families of Hong Kong]]
*[[Oligopoly]]

==References==
{{Reflist}}

==Further reading==
* Masahiko Aoki, ''Information, Incentives and Bargaining in the Japanese Economy'' (1988)
* 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. (15 March 1999). Fall of a Keiretsu. Business Week, issue 3620, 86–92. Retrieved 27 October 2007, from Academic Search Premier database
* 'Whingeing: Japanese-American Trade'. The Economist 18 May 1991
* [http://www.law.harvard.edu/faculty/ramseyer/jemskeiretsu.pdf Jems Keiretsu] Harvard University 
* David Fkath. (September 2005). [https://web.archive.org/web/20120402215916/http://www.econ.kyoto-u.ac.jp/~ida/3Kenkyuu/4ouyoumicro/2006ouyoumicro/060727flath.pdf Distribution Keiretsu, FDI and Import Penetration in Japan] 

{{Keiretsu}}
{{Business organizations}}
{{Economy of Japan}}

[[Category:Keiretsu| ]]
[[Category:Conglomerate companies of Japan]]
[[Category:Japanese business terms]]
[[Category:Strategic management]]