AM Lecture 1

Keiretsu

Today we have a similar business environment structure in Japan, Keiretsu, where a small number firms create a highly interdependent network.

Keiretsus key traits include:

• They are horizontal in type, diversifying into many fields
• Vertical integration within a horizontal keiretsu
• Stable vertical cross-shareholding relationships
• Horizontal affiliations reaching diverse markets
• Huge amount of money, or easy access to it
• Often close managerial ties and interrelationships between companies and suppliers
• Executives on boards represent a number of firms
• Presidents meet regularly

the "Big Six" enterprise complexes are Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa and Dai-ichi Kangyo. In 1992, they made up only 0.0007% of companies, but controlled 19.29% of capital, 16.29% of assets and 18.37% of sales. This means that they have massive amounts of control. This is reinforced by the fact that within the complex of each of the "Big Six" resides a central city back, a general trading company and an insurance company.

Vertical Keiretsu is comprised of a large manufacturing company groups held together by capital ties (unlike the personal ties of zaibatsus), dependency, and financial and technological support. Typically an umbrella format, suppliers are linked into the parent company.

This results in the development of a long-term relationship, where the supplier is dependent on the parent. This means that the parent has the power to drive down the price of supplies. More and more companies spin off, but they are still tied to the main company, having the same linked suppliers.

In 1995 it was estimated that the largest 30 groups were comprised of about 12,577 subsidiaries and affiliated entities.

Highly protectionist activities

Change

Downsides to Japanese management

Dark side of Japanese management in the 1990s

Potential Reasons

The great management myth?

The China syndrome?