Keiretsu business groups gave firms patient finance, reliable suppliers and protection from takeovers, so they could invest for the long term.
A keiretsu is a group of firms linked by owning shares in each other. Large groups such as Mitsubishi, Mitsui and Sumitomo formed around a "main bank". Other keiretsu linked a big manufacturer such as Toyota with its many suppliers.
The main bank lent to group firms and watched over them. Because firms owned each other's shares, they did not fear takeovers. They could aim for long-term growth and market share instead of quick profits.
Supplier keiretsu built close, lasting relationships. Toyota and its suppliers developed "just-in-time" production, which cut waste and raised quality.
Inside large firms, lifetime employment, pay by seniority and company unions built loyalty. Firms could train workers knowing they would stay. These practices covered mainly men in large firms.
The system had costs. It was closed to outsiders, and the USA complained that keiretsu blocked American exports. Banks also kept weak firms alive, which added to the bad-loan problem after 1990.
- Keiretsu
- Groups of firms linked by shareholdings, often around a main bank.
- Just-in-time
- Toyota's system with close suppliers.
- Three treasures
- Lifetime jobs, seniority pay, company unions.
Worked example: Linking keiretsu to growth
How did keiretsu help Japan grow?
- Finance: main banks provided patient credit.
- Stability: shareholdings within the group blocked takeovers.
- Efficiency: supplier networks improved quality.
- Limit: closed markets and protection of weak firms.
Watch out for this
Keiretsu were the same as the pre-war zaibatsu.
Zaibatsu were controlled by families through holding companies. Keiretsu were looser groups linked by shareholdings and banks, with no single family in control.
Check your understanding
Why could keiretsu firms focus on long-term growth?
- Shared shareholdings protected them from takeovers, and main banks gave patient credit.
- They were owned by the government.
- They paid no taxes.