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Question One: Compare the post-war Keiretsu inter-firm structure in Japan with the pre-war Zaibatsus. Explain the reasons why the Keiretsu were important to Japan’s economy in the 1950-1990 period, and why they are now considered to be a major cause of its current structural problems. Introduction
This paper reviews major theoretical and empirical work on comparing the Keiretsu and Zaibatsus as well as the importance of Keiretsus in the process of Japan development during the 1950s to early 1990s. Firstly, I compare the pre-war Zaibatsus with the post-war Keiretsu in concepts, history, structures and governance perspectives. This article will reviews major theoretical and empirical work on vertical and horizontal Japanese keiretsu. I then discuss changes in the Japanese economy during the post-war period from 1950s till 1992 Japanese economic decline and their implications for the persistence and continued benefits of each form of inter-corporate grouping followed by a discussion of facts regarding the role of keiretsu in the Japanese economy. Thirdly, this article will analyse the structural problems of Keiretsus on the globalisation context.
Backgrounds of Zaibatsus and Keiretsus in Japan
Japanese Zaibatsus developed mostly from the Meiji era (1868-1912). By the turn of the century, Japan had given birth to several groups of widely diversified companies, each of them owned and operated by a single family. With the wealth expansion of these families, they became the nation’s new aristocracy, the “financial cliques” or the Zaibatsus. The Zaibatsu is generally understood to be a diverse group of large industries controlled by a single family, usually through a central holding company. According to Miyashita and Russell (1994), a Zaibatsu is “nothing more
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than a large industrial combine” on its initial strcuture. The actual growth of the Zaibatsus began in 1914, World WarⅠ, Japan supplied munitions and other goods to the Allies. Without the competition from European companies, Japanese firms were free to expand internationally. During that five years, the export of Japan increased 266%. The Big Four----Zaibatsus are Mitsui, Sumitomo, Mitsubishi and Yasuda used their profits to start their own bank. The Americans initially wanted to dissolve all the zaibatsu after World WarⅡ, as they saw them as undemocratic and the finance behind the militaristic government of the 1930's (see .wa-pedia.).
Even though Japan's economy made huge strides in economic reformation after the WWⅠ, the Zaibatsu interests began to enter the political arena to support their interests. Their activities became entwined with the government in wartime Japan. Eventually, the Potsdam Declaration that was signed in 1945 required the liquidation of the Zaibatsu to democratize Japan's post–war economy. As explained in the previous article, by 1945 the zaibatsu had grown to control a significant portion of Japanese trade and industry. In addition, for the purpose of controlling economic power, special provisions were included in Japan's Antimonopoly Act for the specific purpose of forbidding holding companies and limiting the acquisition by financial enterprises of stock of other companies. In hindsight these provisions might appear to have been ineffective barriers to the creation of excessive economic control and equally ineffective as measures to ensure competition in Japan's economy. These arguments were made when Japan enacted the Act for partial Amendment of the Antimonopoly Act in 1997 by which act Japan finally eliminated the 50–year old ban on holding companies.
Compare pre-war Zaibatsus with the post-war Keiretsus
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The zaibatsu is a diversified group of businesses owned by a family. Mostly had origins in non-manufacturing sectors in mining, shipping and most importantly, banking. Then diversified not by integration but by shareholdings and representatives on Boards of Directors of separate firms. The Keiretsus are conglomerates similar to pre-war Zaibatsus but not family owned and with a bank at its heart and with one of the following forms (Miwa, 2003):
1. General trading company able to handle gigantic and diverse volume of commerce
2. Production oriented group
3. Distribution oriented group based on network of small retailers 4. Large retail or RR companies
Within years of dismantling the Zaibatsu, changes on both the domestic and international fronts are thought to have led to a relaxation of regulations upon the concentration of economic power in Japan. On the latter front, following the establishment of communist China, U.S. foreign policy toward Japan could be seen shifting to one supporting a shoring up of Japan's economic power. Secondly, industrial growth and increased production capacity in Japan supported the U.S. need for supplies during the Korean War. Under this circumstance, the Ministry of International Trade and Industry (MITI) helped Zaibatsus to reform with personnel and new organizational structure. The personnel system including dispatching senior managers form main banks and sogo shosha to smaller firms aims to tight the horizontal connections in order to keep a controlled decision making process. Keiretsus include horizontal and vertical company relationships, and sometimes business ties that are held together not by capital but by mere transactional relationships among enterprises. The central role of main banks in corporate governance
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greatly distinguishes these groups from the Zaibatsus.
Viewing this development from Zaibatsu the Keiretsu as a whole, the following two points seen characteristic. First, in the pre-war Zaibatsu the links in the enterprise groups were centred on the commercial sector of their businesses. On the contrast, the post-war Keiretsus were paying attentions on heavy and chemical industry sector. Second, the Zaibatsus linked vertically and topped by a holding family for the whole group. By comparison, the Keiretsus are centred on financial institutions (main banks) and linked the enterprises horizontally with newly formed enterprise groups.
PEST analysis on the importance of Keiretsus in Japan’s post-war development
Political: Competitions among countries had a great impact on the development of Japan. The government set the industrial structure of the country with high-standard processing trade (Russell, 1994). Keiretsus’ horizontal networks can be a competitive advantage due to the networks can supervise the whole process from manufacturing to retailing. With the assistance of sogo shosha’s entry to certain country-wide markets, Japan can easily sustain this “input-output synergies” competitive advantage. The Mitsui China Representative office vice president Wei of once mentioned in an interview “We won’t manufacture illegal things, but we are able to manufacture anything else with the Keiretsu networks.”( see .mbalib.).
Economical: During the 1950s to 1990s, Japan experienced three depressions: the oil price increased in the 1970s made the GDP growth rate in
Japan
came
to
a
negative
growth
in
1974
(see .stat.go.jp/english/index.htm). The Plaza Accord indirectly let to
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the bubble economy in Japan. Faced a relatively unfavourable domestic economical context, the competitive advantage of Keiretsus including the Big Six and other firms are making efforts to strengthen their own groups, and at the frontiers of the new industries which have been developed in Japan since the war, they have been competing against one another with out quarter in equipment investment. This is not only in the case of oil-chemicals industry but also in the motor vehicles. Nine manufacturers in addition to Toyota and Nissan are competing to increase their shares in the market. In this case, Japan’s productive potential has risen rapidly and has realized a degree of high growth which is literally the highest In the world.
Apart from external competitive advantages, the internal financial networks also made a great contribution to the rapid growth of Keiretsus and in return to the whole Japan economy. The input-output synergies made the profit-trapping possible. What’s more, the main bank financing and cross-shareholding promoted the capital market of Japan developed fast as well as way to maintain anti-takeover and encouraging risk taking situation.
Social and technological: The labour force assessment of Keiretsus can be identified as follow, until quite recently, a continual supply of superior labour of both with good quality and readily adaptable to modern technology was available. Additionally, the Keiretsus’ tendency to invest was never subject to restriction from this aspect. The new personnel rotation and loan of personnel system make sure the connection between banks and firms. This system enable the banks to supervise the debts and operations of the firms. As for the firms, they may obtain the essential financial supports and advanced management.
In sum, the situation of Japan post-war economy growth was owing to the
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日本财阀系列企业体系Keiretsu历史背景和面临问题
