Keiretsu

A keiretsu (Japanese: 系列, literally system, series, grouping of enterprises, order of succession) is a set of companies with interlocking business relationships and shareholdings that dominated the 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.^[1] It rose up to replace the zaibatsu system that was dissolved in the occupation of Japan following the Second World War.^[2] 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.

The prototypical keiretsu appeared during the Japanese economic miracle which followed World War II, amid the dissolution of family-controlled 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.^[3] 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^[3] and World War I.^[4] During the inter-war period the zaibatsu aided Japanese militarism and benefited from their conquest of East Asia by receiving lucrative contracts.^[3]

After the surrender of Japan the 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during the first half of the 20th century and during the war.^[3] However, the United States government later rescinded those orders in an effort to reindustrialize Japan as a bulwark against communism in Asia, so the zaibatsu were never completely dissolved.^[5]

The two types of keiretsu, horizontal and vertical, can be further categorized as:

• Kigyō shūdan (企業集団, "horizontally diversified business groups")
• Seisan keiretsu (生産系列, "vertical manufacturing networks")
• Ryūtsū keiretsu (流通系列, "vertical distribution networks")

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 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.^[12]

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 takeovers 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.^[13]

Toyota is considered the biggest of the vertically integrated keiretsu groups, although the company is rather considered as a "emerged" keiretsu, along with Softbank, Seven & I Holdings Co.^[14] 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 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 are getting harder and unlikelier than ever before. The companies include Sharp Corporation and Toshiba, both the iconic Japanese corporations that were forced to accept foreign investment in their aftermath of financial difficulties in 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 litigation by more independent shareholders.

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 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.^[17]

• Zaibatsu
  • Chaebol, family-owned conglomerates similar to zaibatsu
• Four big families of Hong Kong
• Oligopoly