Keiretsu is a group of Japanese companies with interconnected boards of directors and common business interests, created after WWII to replace family-owned zaibatsu conglomerates. The keiretsu model is uniquely Japanese, but similar business models exist worldwide. The largest and most well-known keiretsu in Japan is the Mitsubishi group.
A keiretsu is a group of Japanese companies with interconnected boards of directors and common business interests. Created after WWII to replace the once dominant family-owned zaibatsu conglomerates, multiple keiretsu were responsible for the “Japanese miracle” of economic growth that lasted well into the 1980s. While the keiretsu model is uniquely Japanese, there are similar but not identical business models around the world.
The keiretsu pattern grew out of the pre-WWII zaibatsu. Shortly after Japan became an empire in 1868, family businesses began to dominate large swathes of the Japanese economy. Mitsubishi, Yasuda, Sumimoto and Mitsui, the largest zaibatsu, soon acquired much of their power by becoming government debt collectors and arms manufacturers. The American occupation held the zaibatsu responsible for influencing public policy toward the war. Although the occupation disbanded some smaller zaibatsu, the need to rebuild the Japanese economy during the Cold War allowed the big four zaibatsu to reorganize into the modern keiretsu.
The remaining zaibatsu adapted their corporate structure. Two business principles define a keiretsu. The first is that each separate company, traditionally called a group company, is affiliated with the same bank. The bank only takes deposits and makes loans to group companies. An advantage of this system is that the bank can quickly bail out a single ailing group company, protecting it from hostile outside takeover. Even if one group company goes bankrupt, another group company within the keiretsu will absorb the remaining assets.
The second defining principle is the interconnection of boards of directors between group companies. While each group company exists as a separate entity, the presence of the same men and women on multiple boards of directors allows the group companies to act in accordance with the interests and needs of each other. While each group company may be involved in the production of different goods and services, strong financial and corporate ties put all group companies in a stronger and more secure position in the Japanese and global economy.
The largest and most well-known keiretsu in Japan is the Mitsubishi group. Like Sumimoto and Mitsui, Mitsubishi reorganized into an association of group companies responsible for Japan’s postwar growth. Its dozens of group companies produce a variety of products, many of them focused on high technology. Together with the interconnected boards of directors, the heads of the group’s 25 largest companies meet for lunch once a month to coordinate their commercial efforts.
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