The Rise and Fall of The 'Keiretsus' in Japan

The Keiretsus played a major role in the emergence of Japan as a leading global economic power after the World War II. The Keiretsu structure protected the companies from the vagaries of the market and this helped them to grow. But on the flip side, it resulted in these companies having a less proactive approach when it came to assessing the changes in the environment and adapting to those changes.

The long reaction time of the Keiretsu companies in relation to external changes gradually became a major disadvantage for them. By the early 1990s, the advantages that a Keiretsu structure provided to its affiliated members began to diminish.

These business groups laid the foundation of the oligopolies⁶ that came to be known as the Zaibatsus, the precursors of Keiretsus. The Zaibatsus consisted of a mix of firms including banks, trading companies, and manufacturing concerns held together by a holding company under a single family. It was during the Meiji period that Japan began its first phase of industrial development through the export of primary products and import of light industrial goods. During the World War I (1914-18) Japan stayed neutral and this helped the Zaibatsus grow. The Zaibatsus partnered with the government in building the infrastructure of Japan, through large contracts. The Zaibatsus also built up the heavy industries of Japan and their clout expanded.