The Rise and Fall of The 'Keiretsus' in Japan

Case Code: ECON012 Case Length: 14 Pages Period: 1980 - 2003 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.400 Organization : Keiretsus Industry : Microfinance Countries : Japan Themes: - |

Abstract Case Intro 1 Case Intro 2 Excerpts
"The keiretsu structure and the close relations prevailing between Japanese industry and government minimize the risk of investment for Japanese executives to a level far below that faced by their American counterparts."
-Kenichi Ohmae in 1990.
"The Nissan merger masterminded by Renault is a clear reflection of the weaknesses in the Japanese management system, which not so long ago had been revered by western business gurus"
-OECD Observer in 2000.
Introduction
Keiretsu refers to the framework of relationships among Japanese companies that was organized around a common bank for their mutual benefit after the World War II. The Keiretsu structures cooperated with and received strong support from the Japanese government. In the late 1980s, Keiretsus contributed 17% of the total sales and 18% of the total net profits of all Japanese businesses. The Keiretsus employed five percent of Japan's work force.3 According to the Japan Fair Trade Commission, in 1992, almost 20% of Japan's capital was held by the big six Keiretsus and their subsidiaries.
There were wide ranging business links between small and medium-sized manufacturing firms in Japan and the Keiretsus, which meant that the Keiretsu structure left its imprint at all levels of the Japanese economy. The Keiretsu structure helped the companies affiliated to a Keiretsu to maintain long-term business relationships with their partners. The long-term relationship between different companies helped each of them to share resources and increase their competitiveness especially in the export market, which provided the revenues that helped the Japanese economy to grow during the post-World War II period. The companies affiliated to a particular Keiretsu always had each others' long term interests in mind when they undertook any activity, and each of them derived great advantages through this relationship. Each company owned equity in the other member companies of a Keiretsu.
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.
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