Keiretsu system

Definition

The keiretsu system is a Japanese term describing a network of interconnected businesses and corporations that work closely together, often sharing ownership stakes and collaborating in various business operations. This system promotes cooperation over competition, leading to mutual support among member firms, which can enhance efficiency and stability in the economy.

5 Must Know Facts For Your Next Test

1. The keiretsu system emerged in post-World War II Japan as a response to the need for economic recovery and stability, evolving from the earlier zaibatsu system.
2. Keiretsu groups often consist of a core company, such as a major manufacturer, surrounded by suppliers, distributors, and financial institutions that all work closely together.
3. This system fosters long-term relationships and loyalty among its member companies, which can lead to enhanced innovation and risk management through collaboration.
4. Keiretsu structures are typically divided into two types: horizontal keiretsu, where companies from different sectors collaborate, and vertical keiretsu, which focus on supply chain relationships within a specific industry.
5. While keiretsu has provided stability to the Japanese economy, it has also faced criticism for creating inefficiencies, limiting competition, and leading to excessive interdependence among firms.

Review Questions

• How does the keiretsu system promote cooperation among businesses in Japan?
  • The keiretsu system promotes cooperation through interconnected networks of businesses that share ownership stakes and engage in collaborative practices. By fostering long-term relationships, member companies can reduce competition and work together to enhance operational efficiencies. This close collaboration often leads to improved innovation and stability within the economy as firms support each other through shared resources and knowledge.
• What are some advantages and disadvantages of the keiretsu system in the context of corporate governance?
  • One advantage of the keiretsu system is that it allows for a stable environment where companies can innovate and grow without the fear of hostile takeovers due to cross-shareholding. However, this interconnectedness can also lead to challenges in corporate governance, such as reduced accountability and transparency among member firms. This lack of competitive pressure can result in complacency and inefficiencies within the keiretsu structure.
• Evaluate how the transition from zaibatsu to keiretsu reflects broader trends in global governance practices.
  • The transition from zaibatsu to keiretsu illustrates a shift towards more collaborative economic practices and corporate governance models that prioritize stakeholder relationships over sheer market dominance. This reflects broader global trends where companies seek sustainable growth through partnerships rather than aggressive competition. The keiretsu model has influenced international business practices by highlighting the value of cooperation and interdependence, promoting practices that can lead to more resilient economies amid global challenges.

Related terms

Zaibatsu: Large family-controlled vertical monopolies in pre-World War II Japan that dominated the economy, similar in structure to keiretsu but dissolved after the war.

Cross-shareholding: A practice where companies hold shares in one another, creating interdependence and reducing the likelihood of hostile takeovers.

Corporate governance: The system by which companies are directed and controlled, including the relationships between stakeholders and the goals for which the corporation is governed.