A keiretsu (系列, literally system, series, grouping of enterprises, order of succession) is a set of companies with interlocking business relationships and shareholdings. It is a type of informal business group. The keiretsu maintained dominance over the Japanese economy for the second half of the 20th century.[1]

The member companies own small portions of the shares in each other's companies, centered on a core bank; this system helps insulate each company from stock market fluctuations and takeover attempts, thus enabling long-term planning in innovative projects. It is a key element of the automotive industry in Japan.


The prototypical keiretsu appeared in Japan during the "economic miracle" following World War II and the collapse of family-controlled vertical monopolies called zaibatsu.

Prior to World War II, Japan's industrialized economy was dominated by four major zaibatsu: Mitsubishi, Sumitomo, Yasuda and Mitsui. They focused on steel, banking, international trading and various other key sectors in the economy, all of which was controlled by a holding company. Apart from this, they remained in close connection to influential banks that provided funding to their various projects.[2]

Seizure of the zaibatsu families assets, 1946

The zaibatsu had been viewed with some ambivalence by the Japanese military, which nationalized a significant portion of their production capability during World War II. Remaining assets were also highly damaged by the destruction of the war.

Under the American occupation after the surrender of Japan, a partially successful attempt was made to dissolve the zaibatsu. Many of the economic advisors accompanying the SCAP administration had experience with the New Deal program under President Franklin Delano Roosevelt, and were highly suspicious of monopolies and restrictive business practices, which they felt to be both inefficient, and to be a form of corporativism (and thus inherently anti-democratic).

During the occupation of Japan, 16 zaibatsu were targeted for complete dissolution, and 26 more for reorganization after dissolution. Among the zaibatsu targeted for dissolution in 1947 were Asano, Furukawa, Nakajima, Nissan, Nomura, and Okura. Their controlling families' assets were seized, holding companies eliminated, and interlocking directorships, essential to the old system of intercompany coordination, were outlawed. Matsushita (which later took the name Panasonic), while not a zaibatsu, was originally also targeted for dissolution, but was saved by a petition signed by 15,000 of its unionized workers and their families.[3]

However, complete dissolution of the zaibatsu was never achieved, mostly because the United States government rescinded the orders in an effort to reindustrialize Japan as a bulwark against Communism in Asia.[4] Zaibatsu as a whole were widely considered to be beneficial to the Japanese economy and government, and the opinions of the Japanese public, the zaibatsu workers and management, and the entrenched bureaucracy regarding plans for zaibatsu dissolution ranged from unenthusiastic to disapproving. Additionally, the changing politics of the Occupation during the reverse course served as a crippling, if not terminal, roadblock to zaibatsu elimination.

Even until today, banks and trading companies have been at the top of the pyramid, having access and control over a portion of each company's part of the keiretsu. Shareholders succeeded over the family control of the cartel. This was made possible with relaxing of Japanese laws whereby holding companies could become stockholding companies.

Types of keiretsu

Cartels and groupings of various kinds are common in Japan.

The two types of keiretsu, horizontal and vertical, can be further categorized as:

Horizontal keiretsu

The primary aspect of a horizontal keiretsu (also known as financial keiretsu) is that it is set up around a Japanese bank through cross-shareholding relationships with other companies. The bank assists these companies with a range of financial services. The leading horizontal Japanese keiretsu, also referred to as the “Big Six”, include: Fuyo, Sanwa, Sumitomo, Mitsubishi, Mitsui, and Dai-Ichi Kangyo bank groups. Horizontal keiretsu may also have vertical relationships, called branches.

Horizontal keiretsu peaked around 1988, when over half of the value in the Japanese stock market consisted of cross-shareholdings. Since then, banks have gradually reduced their cross-shareholdings. The Japanese corporate governance code, effective from June 2015, requires listed companies to disclose a rationale for their cross-shareholdings. Partly as a result of this requirement, the three Japanese "megabanks" descended from the six major keiretsu banks (namely Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group) have indicated plans to further reduce their balance of cross-shareholding investments.[5]

Jump-style keiretsu

Vertical keiretsu (also known as industrial keiretsu) are used to link suppliers, manufacturers, and distributors of one industry. One or more subcompanies are created to benefit the parent company (for example, Toyota or Honda). Banks have less influence on distribution keiretsu. This vertical model is further divided into levels called tiers. The second tier constitutes major suppliers, followed by smaller manufacturers, who make up the third and fourth tiers. The lower the tier, the greater the risk of economic disruption; moreover, due to low position in the keiretsu hierarchy, profit margins are low.[6]

Nature of the keiretsu

At the epicenter, the "big six" keiretsu is a bank and a trading company (sogo shosha). Japanese banks are allowed to have equity in other firms with a quota of less than 5% of the total number of shares issued by the company (Anti-Monopoly Law Reform of 1977). Banks play a crucial role in the smooth functioning of this organization. They assess the investment projects and provide loans when required. The trading companies (sogo sosha) deal in imports and exports of an assorted range of commodities throughout the world. Each major company has its own "President's Club", enabling interaction of core members to better help decide their strategies.[2]

The Japanese keiretsu took various preventive measures to avoid takeovers from foreign companies. One of them was "interlocking" or "cross-holding" of shares. This method was established by Article 280 of Commerce Law. By doing so, each company held a stake in the other's company. This helped reduce the pressure on management to achieve short-term goals at the expense of long-term growth. Besides that, interlocking of shares serves as a tool for monitoring and disciplining the group's firms. The level of group orientation or strength between the member companies is determined by the "interlocking shares ratio" (the ratio of shares owned by other group firms to total shares issued) and the "intragroup loans ratio" (the ratio of loans received from financial institutions in the group to total loans received).

Industries such as banking, insurance, steel, trading, manufacturing, electric, gas and chemicals are all part of the horizontal keiretsu web. The member companies follow the "One-Set Policy" whereby the groups avoid direct competition between member firms.

The One-Set Policy:[7]

Industry Mitsui Mitsubishi Sumitomo Fuyo Sanwa DKB
Banking Sakura Bank Bank of Tokyo-Mitsubishi Bank Sumitomo Bank Fuji Bank Sanwa Bank Dai-Ichi Kangyo Bank
Trust Banking Mitsui Trust & Banking Mitsubishi Trust & Banking Sumitomo Trust & Banking Yasuda Trust & Banking Toyo Trust & Banking
Life Insurance Mitsui Mutual Life Meiji Mutual Life Sumitomo Mutual Life Yasuda Mutual Life Fukoku Mutual life, Asahi Mutual life
Marine & Fire Insurance Mitsui Marine & Fire Tokio Marine & Fire Sumitomo Marine & Fire Yasuda Marine & fire Nissan Marine & Fire, Taisei Marine & Fire
Trading Company Mitsui Bussan Mitsubishi Shoji Sumitomo Corporation Marubeni Nissho Iwai Itochu
Steel Japan Steel Works Mitsubishi Steel Manufacturing Sumitomo Metal Industries JFE Steel Corporation Nakayama Steel Works, Nisshin Steel Kawasaki Steel, Kobe Steel
Chemicals Mitsui Toatsu Chemicals Mitsubishi Gas Chemicals Sumitomo Chemicals Kureha Chemical Industries Sekisui Chemicals Asahi Chemical Industries
Shipping Mitsui O.S.K. Lines ("MOL") Nippon Yusen Kaisha ("NYK Line") Kawasaki Kishen Kaisha ("K Line")

In the 1920s, government officials maintained close relations with the zaibatsu, and the roots of their influence still hold strong. The keiretsu have great influence on Japanese industrial and economic policy. The preferential buying habits of the keiretsu kept foreign investors and foreign goods out of their markets, which America criticized as "barriers to free trade". This enabled the keiretsu to enjoy monopoly privileges over the Japanese market, thus maintaining high prices for their goods, as they had full dominance over the price and distribution of products and services throughout the supply side. It is believed that due to this practice, Japan in the late 1980s imported far less than it should have ($40 billion less as per a report by the Brookings Institution).

In such a work environment, the probability of an employee to remain working in the same company for his entire working life was very high. Moreover, this framework allowed rapid co-operative development (sharing vital information, reduction in cost of R&D and higher quality products) of the keiretsu.[2]

In Japan

During the occupation of Japan, under the Supreme Commander of the Allied Powers, General Douglas MacArthur, a partially successful attempt was made to dissolve the zaibatsu in the late 1940s. Sixteen zaibatsu were targeted for complete dissolution, and 26 more for reorganization after dissolution. However, the companies formed from the dismantling of the zaibatsu were later reintegrated. The dispersed corporations were reinterlinked through share purchases to form horizontally integrated alliances across many industries. Where possible, keiretsu companies would also supply one another, making the alliances vertically integrated, as well. In this period, official government policy promoted the creation of robust trade corporations that could withstand heavy pressures from intensified trade competition.[8]

The major keiretsu were each centered on one bank, which lent money to the keiretsu member companies and held equity positions in the companies. Each bank had great control over the companies in the keiretsu and acted as a monitoring and emergency bail-out entity. One effect of this structure was to minimize the presence of hostile takeovers in Japan, because no entities could challenge the power of the banks.

Although the divisions between them have blurred in recent years, there have been nine major postwar keiretsu:[7]

Succeeded into Name Bank Major group companies
MUFG Mitsubishi Mitsubishi Bank (until 1996)
Bank of Tokyo-Mitsubishi (1996–2005)
Bank of Tokyo-Mitsubishi UFJ (2006– )
Mitsubishi Trust and Banking
Financial: Tokio Marine and Fire Insurance, Mitsubishi Estate, Meiji Mutual Fund
Construction: Pacific Consultants International
Food: Kirin Brewery
Electronics: Mitsubishi Electric, Mitsubishi Precision
Trading and Commerce:Mitsubishi Corporation
Cars: Mitsubishi Motors, Mitsubishi Heavy Industries, Mitsubishi Fuso Truck and Bus Corporation
Petroleum: Nippon Oil, Mitsubishi Oil, Mitsubishi Nuclear Fuel
Precision Machinery: Nikon
Chemicals: Mitsubishi Chemical, Mitsubishi Gas Chemical, Mitsubishi Rayon Co., Ltd., Mitsubishi Materials Corp., Mitsubishi Plastics Industries, Asahi Glass, Nippon Synthetic Chemical Industries (Nippon Gosei)
Paper: Mitsubishi Paper Mills Ltd.
Iron and Steel: Mitsubishi Steel
Shipping: Nippon Yusen Kaisha - "NYK"
SMFG Mitsui Mitsui Bank (until 1990)
Sakura Bank (1990–2001)
Sumitomo Mitsui Bank (2001– )
Sony Financial,
Sony Bank
Financial: Mitsui Real Estate, Mitsukoshi, Mitsui Mutual Life, Mitsui Marine & Fire
Food: Nippon Flour Mills, Mitsui Sugar, Suntory
Chemicals: Fujifilm, Mitsui Toatsu Chemicals, Mitsui Petrochemical Industries, Toagosei Chemical Industries, Denki Kagaku Kogyo, Daicel Chemical Industries, Mitsui Pharmaceuticals, Mitsui Toatsu Fertilizers, Mitsui Toatsu Dyes, Toray
Trading and Commerce: Mitsui Bussan
Petroleum: General Sekiyu, Kyokuto Petroleum Industries
Electronics: Fujifilm, Sony Corporation, Yaussa Corporation, Ibiden Company, Toshiba
Iron and Steel: Japan Steel Works
Gaming: Sony Computer Entertainment
Entertainment: Sony Pictures Entertainment, Sony Music Entertainment
other Sony subsidiaries and Tokyo Broadcasting System
Shipping: Mitsui O.S.K. Lines ("MOL")
SMFG Sumitomo Sumitomo Bank (until 2001)
Sumitomo Mitsui Bank (2001– ), Sumitomo Trust and Banking
Financial: Sumitomo Corporation, Sumitomo Corporation of America, Sumitomo Mitsui Financial Group, Sumitomo Trust & Banking, Sumitomo Life Insurance Co., Sumitomo Real Estate, Mitsui Sumitomo Insurance Co., Ltd., Sumitomo Realty & Development Co., Ltd., Presidio Ventures,

Construction: Sumitomo Mitsui Construction Co., Ltd., Sumitomo Densetsu, Sumitomo Osaka Cement Co., Ltd.,
Food: Asahi Breweries
Rail: The Sumitomo Warehouse Co., Ltd., Hanshin Railway, Keihan Railway, Nankai Railway
Trading and Commerce: Sumitomo Corporation
Cars: Mazda
Precise machinery: Sumitomo Heavy Industries, Ltd.,
Electronics: NEC, Sumitomo Electric Industries, Ltd.,
Iron and Steel: Sumitomo Metal Industries, Ltd., Mezon Stainless Steel Fzco., Sumitomo Light Metal Industries, Ltd.,
Chemicals: Sumitomo Chemicals, Nippon Sheet Glass Co., Ltd., Sumitomo Bakelite Co., Ltd., Sumitomo Rubber Industries, Ltd., Dainippon Sumitomo Pharma,
Mining: Sumitomo Metal Mining Co., Ltd.
Forestry: Sumitomo Forestry Co., Ltd.
Infrastructure: Nippon Koei

Mizuho Fuyo Fuji Bank (until 2000)
Mizuho Bank (2000– )
Yasuda Trust and Banking
Yamaichi Securities
Financial: Yasuda Mutual Life, Yasuda Marine & Fire
Food: Nisshin Flour Milling, Sapporo Breweries
Precision Machinery: Canon, Hitachi, Ricoh
Trading and Commerce: Marubeni
Chemicals: Showa Denko, NOF Corporation, Kureha Chemical Industries, Nippon Sanso, Hitachi Chemical, Asahi Kasei
Rail: Tobu Railway
Vehicles: Yamaha, Nissan
Retail: Matsuya
Mizuho Dai-Ichi Kangyo (DKB) Dai-Ichi Kangyo Bank (until 2000)
Mizuho Bank (2000– )
Kankaku Securities
Orient Group
Financial: Fukoku Mutual Life, Asahi Mutual Life, Nissan Marine & Fire, Taisei Marine & Fire
Electronics: Fujitsu, Hitachi, Fuji Electric, Yaskawa Electric, Nippon Columbia
Cars: Isuzu, Kawasaki Heavy Industries
Power Generation: Tokyo Electric Power
Petroleum: Showa Shell Sekiyu
Precision Machinery: Asahi Optical
Trading and Commerce: Seibu, Itochu,
Iron and Steel: Kawasaki Steel, Japan Metals, Kobe Steel
Chemicals: Denki Kagaku Kogyo-Mitsui Group, Nippon Zeon, Asahi Denka Kogyo, Sankyo Co., Lion Corporation, Kyowa Hakko Kogyo, Asahi Chemical Industries,
Shipping: Kawasaki Kishen Kaisha - K-Line
MUFG Sanwa ("Midorikai") Sanwa Bank (until 2002)
UFJ Bank (2002–2006)
Bank of Tokyo-Mitsubishi UFJ (2006– )
Toyo Trust and Banking
Food: Itoham Foods, Suntory
Rail: Hankyu Railway, Keisei Railway
Steel: Kobe Steel, Nakayama Steel Works, Nisshin Steel
Precision Machinery: Konica Minolta, Hoya Corporation
Petroleum: Cosmo Oil
Electronics: Hitachi, Iwatsu Electric, Sharp Corporation, Nitto Denko, Kyocera
Trading and Commerce: Takashiama, Orix, Nissho Iwai
Chemicals: Ube Industries, Tokuyama Corp, Hitachi Chemical, Sekisui Chemical, Kansai Paint, Tanabe Seiyaku, Astellas Pharma, Daiso Co., Teijin, Unitika Fukusure
Cars: Hitachi Zosen Corporation
Retail: Takashimaya
Cinema: Toho
MUFG Tokai
(Toyota Group)
Tokai Bank
Chuo Trust
Food: Kagome
Cars: Daihatsu, Suzuki Motor, Toyota
Steel: Daido Steel
Precision Machinery: Ricoh
Petroleum: Idemitsu Kosan
Electronics: Ushio Industries
Trading and Commerce: Matsuzakaya
Mizuho IBJ
Industrial Bank of Japan, New Japan Securities
Wako Securities
IBJ Securities
Cars: Fuji Heavy Industries (Subaru)
Precision Machinery: Ikegai, Riken
Chemicals: Nippon Soda, Chisso Corporation, Nissan Chemical Industries, Tosoh Corporation, Hodogaya Chemical, Plas-Tech, Taihei Chemical, Japan Organo, Kuraray

Toyota is considered the biggest of the vertically integrated keiretsu groups.[9] The banks at the top are not as large as normally required, so it is actually considered to be more horizontally integrated than other keiretsu.

The Japanese recession in the 1990s had profound effects on the keiretsu. Many of the largest banks were hit hard by bad loan portfolios and forced to merge or go out of business. This had the effect of blurring the lines between the individual keiretsu: Sumitomo Bank and Mitsui Bank, for instance, became Sumitomo Mitsui Banking Corporation in 2001, while Sanwa Bank (the banker for the Hankyu-Toho Group) became part of Bank of Tokyo-Mitsubishi UFJ.

Generally, these causes gave rise to a strong notion in the business community that the old keiretsu system was not an effective business model, and led to an overall loosening of keiretsu alliances. While they still exist, they are not as centralized or integrated as they were before the 1990s. This, in turn, has led to a growing corporate acquisition industry in Japan, as companies are no longer able to be easily "bailed out" by their banks, as well as rising derivative litigation by more independent shareholders.

Outside Japan

The keiretsu model is fairly unique to Japan. The closest foreign counterpart would be the Korean chaebol, but many diversified non-Japanese businesses groups have been described as keiretsu, such as the Virgin Group (UK), and Tata Group (India), and the Colombian Grupo Empresarial Antioqueño. Some industry consortiums and alliances have also been described this way. The most common examples are the airline code-sharing alliances, such as Oneworld and Star Alliance. While these arrangements do link a broad range of companies around a common organization, these groupings tend to have minimal financial entanglement, and are generally designed around gaining access to foreign markets within industries governments consider sensitive such as mining and aviation when foreign ownership is limited or even banned. Some industries, such as the automotive, have created broad cross ownership networks across nations, but normally the national companies are independently managed. Banks cited as being central to keiretsu-like systems include Deutsche Bank and some keiretsu like systems, generally referred to as trusts, were created by investment banks in the United States such JP Morgan and Mellon Financial/Mellon family beginning in the late 19th century (roughly the same period they were created in Japan), but they were largely curtailed through anti-trust legislation championed by Theodore Roosevelt in the early part of the 20th century. A form of keiretsu can also be found in the cross-shareholdings of the large media companies throughout most developed nations.[10] These are largely designed to link content producers to particular distribution channels, and larger content projects, such as expensive movies, are often incorporated with ownership spread across a number of larger companies.

Contrarian view

Harvard Law School professor J. Mark Ramseyer and University of Tokyo professor Yoshiro Miwa have argued that the postwar keiretsu are a "fable" created by Marxist thinkers in the 1960s so as to argue that monopoly capital dominated the Japanese economy. They point to the sparsity and tenuousness of cross-shareholding relationships within the keiretsu, the inconsistency in members' relationships with the "main banks" of each keiretsu, and the lack of power and reach of the zaibatsu alumni "lunch clubs" which are often argued to form a core of keiretsu governance.[11]

United States-Japan bilateral accords (agriculture and auto)

By April 2015 U.S. Trade Representative Michael Froman and Japanese Economy Minister Akira Amari—representing the two largest economies of the 12-nation Trans-Pacific Partnership — were involved in bilateral talks regarding agriculture and auto parts, the "two largest obstacles for Japan."[12] These bilateral accords would open each other's "markets for products such as rice, pork and automobiles.[12] During the two-day ministerial TPP negotiating session held in Singapore in May, 2015, the U.S. Trade Representative (USTR) and veteran negotiator, Wendy Cutler, and Oe Hiroshi, of the Japanese Gaimusho, held bilateral trade talks regarding one of the most contentious trade issue— automobiles. American negotiators wanted the Japanese to open their entire keiretsu structure which is the corner stone of Japanese economy and society to American automobiles. They wanted Japanese dealer networks, such as Toyota, Nissan, Honda, Mitsubishi, and Mazda, to sell American cars.[13] The successful conclusion of these bilateral talks was necessary before the other ten TPP members could complete the trade deal.[12]

See also


  1. Keiretsu Definition - What is Keiretsu?
  2. 1 2 3 Evolution of Keiretsu and their Different Forms
  3. Morck & Nakamura, p. 33
  4. In his 1967 memoirs, George F. Kennan wrote that aside from the Marshall Plan, setting the "reverse course" in Japan was "the most significant contribution [he] was ever able to make in government." George F. Kennan, Memoirs, 1925-50 (Boston, 1967), 393.
  5. Fukase, Atsuko (31 July 2015). "Mitsubishi UFJ Joins Crusade on Cross-Shareholding". Wall Street Journal. Retrieved 7 August 2015.
  6. What is Keiretsu?
  7. 1 2 The Keiretsu of Japan
  8. "Japan Again Plans Huge Corporations". The New York Times. Associated Press. 17 July 1954. Retrieved 4 July 2011.
  9. The Toyota Group, the One and Only Horizontal-Vertical Keiretsu
  10. See Columbia Journalism Review's "Who Owns What" website or They Rule.
  11. Miwa & Ramseyer, 2001
  12. 1 2 3 "Japan, U.S. Seek Trade Pact Deals on Rice, Auto Parts", Bloomberg, 19 April 2015, retrieved 8 August 2015
  13. Stephen Harner (20 May 2015), Japan Auto Imports, TPP, And The Price Of American 'Leadership', Forbes, retrieved 8 August 2015

Further reading

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