Keiretsu

Reviewed by Annapoorna | Updated on Aug 27, 2020

Introduction

The organisation of Japan's major corporations, known as Keiretsu, is steeped in tradition and ties. A keiretsu is a Japanese term that means a 'headless combine'. It is a system, series, or group of enterprises in the order of succession.

What is Meant by Keiretsu?

Keiretsu is a group of companies whose corporate relationships and shareholdings interlock. Legally, it is a type of informal business group that is a loosely organised alliance within the social world of the business community of Japan.

Keiretsu refers to a business network made up of various companies that have close relationships and often take small equity stakes in each other, most of the times remaining operationally independent.

Organisations belonging to the member own small portions of the shares in each other's organisations, based on the norms of a central bank. This system helps insulate each company from volatility in the stock market and takeover attempts, thereby allowing long-term project planning. It is an essential element of Japan's manufacturing industry.

Understanding Keiretsu

Keiretsu way of doing business sprang to prominence after World War II and the destruction of the Japanese zaibatsu. For the second half of the 20th century, Keiretsu exercised control over the Japanese economy, and in the early 21st century, it was found to a lesser degree.

A horizontal Keiretsu is an association of various companies, led by a bank providing financial assistance to them. A vertical Keiretsu refers to the relationship between fabricators, manufacturers, and distributors. We work together with a common goal to cut costs and become more productive.

Banks play a crucial role in this organisation's smooth functioning. They assess the investment projects and lend when necessary. Trading companies (sogo shosha) deal with a varied variety of goods worldwide in imports and exports.

The major company has its own "President's Club" which helps core members to communicate more with each other to help decide their strategies.

Industries like the banking, insurance, steel, trading, manufacturing, electric, gas, and chemicals are all components of the horizontal Keiretsu web. The member companies adhere to the "One-Set Policy" whereby the groups avoid any direct competition among member firms.