A is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community. The ''keiretsu'' system dominated the Japanese economy for the second half of the 20th century, following the dissolution of the '' zaibatsu'' 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 World War II by country, vast majority of the world's countries—including all of the great power ...

, 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 which followed

, amid the dissolution of family-controlled vertical monopolies called '' zaibatsu''. 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 1947 constitution and subsequent form ...

since Japanese industrialization accelerated during the

Meiji Era The is an era of Japanese history that extended from October 23, 1868 to July 30, 1912. The Meiji era was the first half of the Empire of Japan, when the Japanese people moved from being an isolated feudal society at risk of colonization ...

. 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 List of wars and anthropogenic disasters by death toll, one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, ...

. During the inter-war period the ''zaibatsu'' aided Japanese militarism and benefited from their conquest of East Asia by receiving lucrative contracts. After the

surrender of Japan The surrender of the Empire of Japan in World War II was announced by Emperor Hirohito on 15 August and formally signed on 2 September 1945, bringing the war's hostilities to a close. By the end of July 1945, the Imperial Japanese Na ...

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, ...

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, Sanwa,

Sumitomo The is one of the largest Japanese ''keiretsu'', or business groups, founded by Masatomo Sumitomo (1585-1652) around 1615 during the early Edo period. History The Sumitomo Group traces its roots to a bookshop in Kyoto founded circa 1615 by Mas ...

Mitsubishi The is a group of autonomous Japanese multinational companies in a variety of industries. Founded by Yatarō Iwasaki in 1870, the Mitsubishi Group historically descended from the Mitsubishi zaibatsu, a unified company which existed from 1870 ...

, Mitsui, and DKB Group. 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.

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,

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 , trading as Nissan Motor Corporation and often shortened to Nissan, is a Japanese multinational automobile manufacturer headquartered in Nishi-ku, Yokohama, Japan. The company sells its vehicles under the Nissan, Infiniti, and Datsun bra ...

. 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 businesses, 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 Japan was occupied and administered by the victorious Allies of World War II from the 1945 surrender of the Empire of Japan at the end of the war until the Treaty of San Francisco took effect in 1952. The occupation, led by the United States ...

, under the Supreme Commander of the Allied Powers, General

Douglas MacArthur Douglas MacArthur (26 January 18805 April 1964) was an American military leader who served as General of the Army for the United States, as well as a field marshal to the Philippine Army. He had served with distinction in World War I, was ...

, 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. 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 eight major postwar ''keiretsu'': Toyota 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, 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 and Mitsui Bank, for instance, became

Sumitomo Mitsui Banking Corporation 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 se ...

in 2001, while Sanwa Bank (the banker for the Hankyu-Toho Group) became part of

Bank of Tokyo-Mitsubishi UFJ is the largest bank in Japan. It was established on January 1, 2006, following the merger of the Bank of Tokyo-Mitsubishi, Ltd. and UFJ Bank Ltd. MUFG is one of the three so-called Japanese "megabanks" (along with SMBC and Mizuho). As such, ...

. 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 t ...

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 (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 continent ...

(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 entertainmen ...

. 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 and Star Alliance. 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 St ...

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 "sett ...

, were created by investment banks in the United States such as 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 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 Harvard Law School (Harvard Law or HLS) is the law school of Harvard University, a private research university in Cambridge, Massachusetts. Founded in 1817, it is the oldest continuously operating law school in the United States. Each c ...

professor J. Mark Ramseyer and University of Tokyo professor Yoshiro Miwa have argued that the postwar ''keiretsu'' are a "fable" created by

Marxist Marxism is a left-wing to far-left method of socioeconomic analysis that uses a materialist interpretation of historical development, better known as historical materialism, to understand class relations and social conflict and a dialecti ...

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, Pe ...

, 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, 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.