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Intermediate Japanese - Free Online Course
KEIRETSU
系列
keiretsu
The keiretsu system was a recurring theme in the trade squabbles that occurred between the United States and Japan in the late 1980s and early 1990s. According to the U.S. view, the keiretsu system tilted the playing field of the Japanese marketplace against outside competitors. The keiretsu issue was a centerpiece of the U.S. government’s Structural Impediments Initiative (SII) of March 1990—a bill designed to pry open the Japanese marketplace.
"A Series of Affiliations"
At the simplest level, the Japanese word keiretsu simply means “a series of affiliations.” In this strict sense of the word, there are many “keiretsu” in the United States. For example, automotive parts manufacturer Delphi Corporation was originally a wholly owned subsidiary of General Motors, and still maintains links to GM as an independent company. The publishing and media world is full of keiretsu as well; publishing giants like Random House own dozens of smaller imprints and publishers.
How are the Japanese keiretsu unique and different? According to the critics of the keiretsu system, each of Japan’s “series of affiliations” effectively functions as a giant mega-firm, excluding outsiders and restricting competition in the marketplace.
T. Boone Pickens was one of the first Americans to expose the keiretsu system to public scrutiny. In 1990 the Texas oilman and corporate raider became the largest stockholder of Koito Manufacturing Company---an automotive components manufacturer in Toyota Motor Company’s keiretsu system. Pickens was disgruntled over two points. First of all, he believed that Toyota, Koito’s second largest shareholder, manipulated Koito into pricing its automotive components at artificially low levels, thereby hurting Koito’s shareholders. He was also miffed because Koito would not give him a seat on its board of directors.
The Vertical Keiretsu
Toyota Motor Company is a classic example of a vertical keiretsu---one of the two major varieties. A vertical keiretsu is a group of companies that exist for the benefit of a single, monolithic manufacturer.
As one might expect, there is also a Honda keiretsu; and most of Japan’s large manufacturing firms maintain some sort of keiretsu network. A vertical keiretsu consists of tiers, with a company like Toyota at the top, followed by a secondary tier of major suppliers, and then a tertiary tier of smaller manufacturers. Although their primary raison d'être is manufacturing, vertical keiretsu also include trading companies and financial service providers.
There are exceptions to the rule, but suppliers within a given vertical keiretsu generally don’t do business with the lead company’s competitors. A supplier in the Toyota network would restrict sales of its components to Honda, for example.
The lead company is often a major stockholder in the keiretsu member companies. In many cases, the lead company also dispatches top managers to work in the keiretsu firms. Early in my career, I worked for a Honda keiretsu company in Ohio. Two of the company’s executive vice presidents were dispatch employees from Honda.
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