Keiretsu

Definition

Keiretsu is a Japanese term that refers to a set of companies with interlocking business relationships and shareholdings, often centered around a major bank. This structure creates a stable network that fosters collaboration and reduces competition among its members, while also ensuring mutual support during economic challenges.

5 Must Know Facts For Your Next Test

1. Keiretsu emerged after World War II as a way to rebuild Japan's economy, replacing the older zaibatsu system that had been dismantled by the Allied occupation.
2. Members of a keiretsu typically include manufacturers, suppliers, and distributors that collaborate closely, sharing information and resources to enhance efficiency and innovation.
3. The financial stability provided by keiretsu relationships often allows member companies to take long-term investments without the immediate pressure of short-term profits.
4. Keiretsu structures can lead to reduced competition among member firms, which may raise concerns about market monopolization and impact on consumer choice.
5. In addition to economic benefits, keiretsu fosters a strong sense of loyalty and commitment among member companies, which can lead to improved employee morale and retention.

Review Questions

• How does the keiretsu structure influence the relationships between member companies?
  • The keiretsu structure significantly influences relationships by fostering collaboration rather than competition. Member companies benefit from shared resources and information, leading to increased efficiency in operations. This network encourages long-term planning and investment strategies that prioritize collective growth over individual short-term gains.
• What are the implications of cross-shareholding in keiretsu for corporate governance?
  • Cross-shareholding in keiretsu has profound implications for corporate governance. It creates a web of interdependencies that can enhance stability but may also dilute accountability. With shared ownership, decisions may prioritize group interests over shareholder value, raising questions about transparency and potential conflicts of interest among board members.
• Evaluate the impact of keiretsu on Japan's economic recovery post-World War II and its relevance in today's global economy.
  • Keiretsu played a crucial role in Japan's economic recovery after World War II by facilitating cooperation among businesses and providing financial support through major banks. This structure allowed for efficient production processes and innovation, contributing to Japan's rapid industrial growth. In today's global economy, while some elements of keiretsu have been adapted or diminished, the principles of inter-company collaboration and strategic alliances remain relevant as businesses seek resilience against competitive pressures and market volatility.

Related terms

Zaibatsu: Zaibatsu were large conglomerates in pre-World War II Japan, characterized by family ownership and centralized control over multiple industries.

Cross-shareholding: Cross-shareholding occurs when two or more companies own shares in each other, creating interdependencies that can enhance stability and collaboration.

Corporate governance: Corporate governance encompasses the systems and processes that direct and control a company, including the relationships between stakeholders such as shareholders, management, and the board of directors.