Page 179 - Global Political Economy_Understanding The International Economic Order

CHA PTER S EVEN
The keiretsu, a business grouping or conglomerate whose members
are bound together by the mutual trust and long-term relationships
among a number of major firms, their suppliers, and their distribution
networks, is a particularly important component of the Japanese cor-
porate system. 32 At the heart of every keiretsu is a major bank (re-
ferred to in Japan as the main bank system) that supplies credit and
plays a key role in the keiretsu’s economic strategy. Informal ties
among member firms are reinforced by overlapping memberships on
governing boards, mutual stock ownership, and other mechanisms.
The purpose of these structures is to serve the interests of stakehold-
ers rather than shareholders. There are horizontal keiretsu, enterprise
groups such as Mitsui, Mitsubishi, and Sumitomo, that are composed
of a few dozen members and include a large bank, manufacturing
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firms, and a distribution network along with other elements. In ad-
dition, there are vertical keiretsu composed of a parent manufacturing
company and a large network of long-standing subcontractors and
suppliers of services. The approximately two dozen vertical keiretsu
include leading Japanese manufacturing corporations in the automo-
tive and consumer electronics industries, such as Toyota and Matsu-
shita. Together, the vertical and horizontal keiretsu control much of
Japanese business.
Dominant firms in a keiretsu may exploit and/or promote the
strengths of their junior partners. For example, the parent firms work
with their extensive stable of long-term and trusted subcontractors to
increase the latter’s technological capabilities and to improve the
quality of the components supplied to the parent. The parent even
shares exclusive information with its affiliates, and this greatly en-
hances the overall efficiency of the keiretsu. The extensive presence
of the keiretsu in the Japanese economy thus has profound conse-
quences for the nature of Japanese domestic and international eco-
nomic competition and for the dynamics of the Japanese economy.
Market share rather than profit maximization has been the principal
driving force in Japanese corporate strategy; a large market share in-
creases economies of scale and benefits the firm’s stakeholders. Even

32
Kester, Japanese Takeovers.
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The six or so horizontal keiretsu are the direct descendants of the prewar zaibatsu
that the Occupation sought to destroy and thought they had. The principal characteris-
tics of these groupings is that the members in each grouping hold one another’s shares
and have interlocking directorates. The presidents of member firms meet frequently to
formulate strategy and decide upon joint policies. The members of the group also coop-
erate in financial matters,R&D activities, and marketing. Together, these six indus-
trial groupings have a powerful presence in the Japanese economy.
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