A is a set of

companies A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared go ...

with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal

business group A corporate group or group of companies is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. These types of groups are often managed by an account manager. The concept ...

that are loosely organized alliances within the social world of Japan's business community. The ''keiretsu'' system dominated the

Japanese economy The economy of Japan is a highly developed social market economy, often referred to as an East Asian model. It is the third-largest in the world by nominal GDP and the fourth-largest by purchasing power parity (PPP). It is the world's seco ...

for the second half of the 20th century, following the dissolution of the ''

zaibatsu is a Japanese term referring to industrial and financial vertically integrated business conglomerates in the Empire of Japan, whose influence and size allowed control over significant parts of the Japanese economy from the Meiji period unt ...

'' after

World War II World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposing ...

, and, to a lesser extent, continues to do so in the early 21st century. The members' 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 In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to ...

attempts, thus enabling long-term planning in projects. It is a key element of the manufacturing industry in Japan.

History

The prototypical ''keiretsu'' appeared during the

Japanese economic miracle The Japanese economic miracle refers to Japan's record period of economic growth between the post-World War II era and the end of the Cold War. During the economic boom, Japan rapidly became the world's second-largest economy (after the Unit ...

which followed

, amid the dissolution of family-controlled vertical monopolies called ''

''. The ''zaibatsu'' had been at the heart of economic and industrial activity within the

Empire of Japan The also known as the Japanese Empire or Imperial Japan, was a historical nation-state and great power that existed from the Meiji Restoration in 1868 until the enactment of the post-World War II Constitution of Japan, 1947 constitu ...

since Japanese industrialization accelerated during the Meiji Era. They held great influence over Japanese national and foreign policies which only increased following the Japanese victories in the

Russo-Japanese War The Russo-Japanese War ( ja, 日露戦争, Nichiro sensō, Japanese-Russian War; russian: Ру́сско-япóнская войнá, Rússko-yapónskaya voyná) was fought between the Empire of Japan and the Russian Empire during 1904 and 1 ...

of 1904–1905 and

World War I World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...

. During the

inter-war period In the history of the 20th century, the interwar period lasted from 11 November 1918 to 1 September 1939 (20 years, 9 months, 21 days), the end of the First World War to the beginning of the Second World War. The interwar period was relative ...

the ''zaibatsu'' aided Japanese militarism and benefited from their conquest of East Asia by receiving lucrative contracts. After the surrender of Japan the Allied occupation forces partially attempted to dissolve the ''zaibatsu'' which had worked closely with the militarists during the first half of the 20th century and during the war. However, the United States government later rescinded those orders in an effort to reindustrialize Japan as a bulwark against

Communism Communism (from Latin la, communis, lit=common, universal, label=none) is a far-left sociopolitical, philosophical, and economic ideology and current within the socialist movement whose goal is the establishment of a communist society, a ...

in Asia, so the ''zaibatsu'' were never completely dissolved.

Types

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 is a Japanese ''keiretsu'' descended from the Yasuda zaibatsu, Asano zaibatsu and Okura zaibatsu. They are major business grouping in Japan up to World War II. In 1948, Yasuda was dismantled, with its key financial arm Yasuda Bank becoming Fuji ...

, Sanwa, Sumitomo, Mitsubishi,

Mitsui is one of the largest ''keiretsu'' in Japan and one of the largest corporate groups in the world. The major companies of the group include Mitsui & Co. ( general trading company), Sumitomo Mitsui Banking Corporation, Nippon Paper Industries ...

, and

DKB Group The or the Dai-Ichi Kangyo Group was the largest Japanese keiretsu in the late 1990s. The group emerged after World War II and coalesced around the Dai-Ichi Kangyo Bank. Two of DKB's largest clients, Kawasaki Heavy Industries and Furukawa Electri ...

. 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 is a Japanese bank holding and financial services company headquartered in Chiyoda, Tokyo, Japan. MUFG holds assets of around US$3.1 trillion as of 2016 and is one of the "Three Great Houses" of the Mitsubishi Group alongside Mitsubishi Corp ...

Sumitomo Mitsui Financial Group is a Japanese multinational banking and financial services institution headquartered in Yurakucho, Chiyoda, Tokyo, Japan. The group operates in retail, corporate, and investment banking segment worldwide. It provides financial products and ser ...

and

Mizuho Financial Group , abbreviated as MHFG, or simply called Mizuho, is a banking holding company headquartered in the Ōtemachi district of Chiyoda, Tokyo, Japan. The name "" literally means "abundant rice" in Japanese and "harvest" in the figurative sense. Upo ...

) have indicated plans to further reduce their balance of cross-shareholding investments.

Vertical ''keiretsu''

Vertical ''keiretsu'' (also known as industrial or distribution'' keiretsu'') are used to link suppliers, manufacturers, and distributors of one industry. Banks have less influence on vertical ''keiretsu''. Examples of this type include

Toyota is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on . Toyota is one of the largest automobile manufacturers in the world, producing about 10 ...

Toshiba , commonly known as Toshiba and stylized as TOSHIBA, is a Japanese multinational conglomerate corporation headquartered in Minato, Tokyo, Japan. Its diversified products and services include power, industrial and social infrastructure systems, ...

, and Nissan. One or more sub-companies, arranged in tiers of importance, are created to benefit the parent company. Major suppliers form the second tier beneath the parent, and smaller manufacturing companies make up the third and fourth tiers. Those at the highest levels are most profitable, and most insulated from fluctuations in the market. Some vertical ''keiretsu'' may belong to one or another horizontal ''keiretsu''. Some vertical ''keiretsu'' are

family business A family business is a commercial organization in which decision-making is influenced by multiple generations of a family, related by blood or marriage or adoption, who has both the ability to influence the vision of the business and the willingn ...

es, such as the Hitotsubashi/Shogakukan, Kodansha and APA groups. Studies have found these vertical ''keiretsus,'' particularly those that belong to the same horizontal ''keiretsu'', are more likely to form alliances than the other types or even those companies where one or two have ''keiretsu'' affiliations. Vertical ''keiretsu'' is considered an effective and competitive organizational model in the car industry.

In Japan

During the occupation of Japan, under the

Supreme Commander of the Allied Powers was the title held by General Douglas MacArthur during the United States-led Allied occupation of Japan following World War II. It issued SCAP Directives (alias SCAPIN, SCAP Index Number) to the Japanese government, aiming to suppress its "milit ...

, General Douglas MacArthur, a partially successful attempt was made to dissolve the ''

'' 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. 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 takeover In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to t ...

s 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 eight major postwar ''keiretsu'':

is considered the biggest of the

vertically integrated In microeconomics, management and international political economy, vertical integration is a term that describes the arrangement in which the supply chain of a company is integrated and owned by that company. Usually each member of the supply ...

''keiretsu'' groups, although the company is rather considered as a "emerged" keiretsu, along with

Softbank is a Japanese multinational conglomerate holding company headquartered in Minato, Tokyo which focuses on investment management. The Group primarily invests in companies operating in technology, energy, and financial sectors. It also runs the Vi ...

, Seven & I Holdings Co. 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 was a major Japanese bank based in Osaka and a central component of the Sumitomo Group. It merged with Sakura Bank on April 1, 2001 to form Sumitomo Mitsui Banking Corporation. History Sumitomo Bank was established as a private enterprise ...

and

Mitsui Bank was a major Japanese bank from 1876 to 1990. It merged with Taiyo Kobe Bank to form Mitsui Taiyo Kobe Bank (MTKB), which was renamed The Sakura Bank in April 1992. Sakura Bank is now part of Sumitomo Mitsui Banking Corporation (SMBC). History T ...

, for instance, became Sumitomo Mitsui Banking Corporation in 2001, while

Sanwa Bank was a major Japanese bank headquartered in Osaka, which operated from 1933 to 2002. It merged with Tokai Bank to form UFJ Bank (now part of MUFG Bank). In the 1990s, it was the most profitable bank in the world, and second-largest in terms of ass ...

(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 Japanese 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 2000s. For instance, many troubled Japanese companies are faced with a new reality in which receiving financial support from their main banks are getting harder and unlikelier than ever before. The companies include

Sharp Corporation is a Japanese multinational corporation that designs and manufactures electronic products, headquartered in Sakai-ku, Sakai, Osaka Prefecture. Since 2016 it has been majority owned by the Taiwan-based Foxconn Group. Sharp employs more than 5 ...

and

, both the iconic Japanese corporations that were forced to accept foreign investment in their aftermath of financial difficulties in 2010s. This changed environment, 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. However, many diversified non-Japanese businesses groups have been described as ''keiretsu'', such as the

Virgin Group Virgin Group Ltd. is a British multinational venture capital conglomerate founded by Richard Branson and Nik Powell in February 1970. Virgin Group's date of incorporation is listed as 1989 by the Companies House, who class it as a holding co ...

(UK),

Tata Group The Tata Group () is an Indian multinational conglomerate headquartered in Mumbai. Established in 1868, it is India's largest conglomerate, with products and services in over 150 countries, and operations in 100 countries across six continents ...

(India), the Colombian

Grupo Empresarial Antioqueño The ''Grupo Empresarial Antioqueño'' (GEA, Business Group of Antioquia) also known as ''Sindicato Antioqueño'', is a Colombian conglomerate composed by around 125 companies, most of them based in Antioquia Department. Though, legally speaking, ...

and the Venezuelan

Grupo Cisneros Grupo Cisneros is a privately held, family owned business headquartered in Coral Gables, Florida, historically based in Venezuela, with a focus on Latin American and Spanish-speaking people worldwide. It is a conglomerate of media entertainment, ...

. Some industry consortiums and alliances have also been described in this way. The most common examples are the airline code-sharing alliances, such as

Oneworld Oneworld (stylised as oneworld; CRS: *O) is an airline alliance founded on 1 February 1999. The alliance's stated objective is to be the first choice airline alliance for the world's frequent international travellers. Its central alliance offic ...

and

Star Alliance Star Alliance is the world's largest global airline alliance. Founded on 14 May 1997, its CEO is Jeffrey Goh and its headquarters is located in Frankfurt am Main, Germany. , Star Alliance is the largest of the three global alliances by passenge ...

. While those arrangements link a broad range of companies around a common organization, the groupings tend to have minimal financial entanglement and are generally designed around gaining access to foreign markets within industries that governments consider sensitive such as mining and aviation when foreign ownership is limited or even banned. The automotive and industries have created broad cross-ownership networks across nations, but the national companies are normally independently managed. Banks cited as being central to ''keiretsu''-like systems include

Deutsche Bank Deutsche Bank AG (), sometimes referred to simply as Deutsche, is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed on the Frankfurt Stock Exchange and the New York Sto ...

and some ''keiretsu''-like systems, generally referred to as

trusts A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settl ...

, were created by investment banks in the United States such as

JP Morgan JPMorgan Chase & Co. is an American Multinational corporation, multinational Investment banking, investment bank and financial services holding company headquartered in City of New York, New York City and Delaware General Corporation Law, inco ...

and

Mellon Financial Mellon Financial Corporation was an investment firm which was once one of the world's largest money management firms. Based in Pittsburgh, Pennsylvania, it was in the business of institutional and high-net-worth individual asset management, incl ...

Mellon family The Mellon family is a wealthy and influential American family from Pittsburgh, Pennsylvania. The family includes Andrew Mellon, one of the longest-serving U.S. Treasury Secretaries, along with prominent members in the judicial, banking, financi ...

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 Theodore Roosevelt Jr. ( ; October 27, 1858 – January 6, 1919), often referred to as Teddy or by his initials, T. R., was an American politician, statesman, soldier, conservationist, naturalist, historian, and writer who served as the 26t ...

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. 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 , abbreviated as or UTokyo, is a public research university located in Bunkyō, Tokyo, Japan. Established in 1877, the university was the first Imperial University and is currently a Top Type university of the Top Global University Project b ...

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.Miwa & Ramseyer, 2001
/ref>

United States–Japan bilateral relationship

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 The Trans-Pacific Partnership (TPP), or Trans-Pacific Partnership Agreement, was a highly contested proposed trade agreement between 12 Pacific Rim economies, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Sin ...

, were involved in bilateral talks regarding agriculture and auto parts, the "two largest obstacles for Japan." These bilateral accords would open each other's markets for products such as rice, pork and automobiles. 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 The is an executive department of the Government of Japan, and is responsible for the country's foreign policy and international relations. The ministry was established by the second term of the third article of the National Government Organi ...

, held bilateral trade talks regarding one of the most contentious trade issues, automobiles. American negotiators wanted the Japanese to open their entire ''keiretsu'' structure, a cornerstone of the Japanese economy, to American automobiles. They wanted Japanese dealer networks such as Toyota, Nissan, Honda, Mitsubishi, and Mazda to sell American cars. The successful conclusion of these bilateral talks was necessary before the other ten TPP members could complete the trade deal.