A keiretsu is a unique form of business
organization that originated in Japan and is characterized by a close-knit network of companies with interlocking relationships. The term "keiretsu" translates to "group" or "series" in English, and it refers to a group of companies that are linked together through various means, such as cross-shareholdings, mutual shareholding, and business relationships. Keiretsu can be broadly categorized into two types: vertical keiretsu and horizontal keiretsu.
Vertical keiretsu primarily consists of companies operating in different stages of the supply chain
within a particular industry. This type of keiretsu is often found in industries such as automotive, electronics, and steel manufacturing. The main objective of a vertical keiretsu is to ensure a stable supply of raw materials, components, and services, as well as to coordinate production and distribution activities. In a vertical keiretsu, a core company, often referred to as the "parent" or "central" company, plays a central role in coordinating the activities of the affiliated companies
. The core company typically holds significant equity stakes in its affiliated companies and may also have representatives on their boards of directors.
Horizontal keiretsu, on the other hand, involves companies operating in the same industry or related industries. These keiretsu are characterized by collaborative relationships aimed at achieving economies of scale
, sharing resources, and enhancing competitiveness. Horizontal keiretsu often emerge in industries such as finance, telecommunications, and retail. In this type of keiretsu, companies may form alliances or joint ventures to pool their resources, share market intelligence, and coordinate their marketing
and distribution efforts. By collaborating closely, companies within a horizontal keiretsu can leverage their combined strengths to compete more effectively against larger competitors.
The functioning of a keiretsu is based on mutual trust, long-term relationships, and reciprocal obligations. Companies within a keiretsu often share common goals and work together to achieve them. They may engage in cross-shareholdings, where companies hold shares
in each other to foster mutual dependence and discourage takeovers by external parties. This practice helps maintain stability within the keiretsu and enables companies to have a say in each other's decision-making processes. Additionally, keiretsu members often provide each other with preferential treatment, such as preferential access to supplies, financing, or distribution channels.
Keiretsu also play a significant role in Japan's corporate governance system. The close relationships between companies within a keiretsu can influence decision-making processes, as well as the appointment of directors and executives. This can lead to a more consensus-driven approach to management and decision-making, with an emphasis on long-term stability and the interests of the group as a whole.
While keiretsu have historically been successful in promoting collaboration, stability, and long-term planning, they have also faced criticism for potentially stifling competition and innovation. Critics argue that the close relationships within a keiretsu can create barriers to entry
for new players and limit market competition. Furthermore, the reliance on mutual support within a keiretsu may discourage companies from seeking external partnerships or exploring new business opportunities.
In conclusion, a keiretsu is a unique form of business organization characterized by a close-knit network of companies with interlocking relationships. It functions through mutual trust, long-term relationships, and reciprocal obligations, with the aim of achieving stability, collaboration, and enhanced competitiveness. Keiretsu can be categorized into vertical and horizontal types, depending on the nature of the industry involved. While keiretsu have played a significant role in Japan's corporate landscape, they have also faced criticism for potentially limiting competition and innovation.