Keiretsu

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Keiretsu

A network of Japanese companies organized around a major bank. The term is also used outside of Japan to describe how a large corporation with many subsidiaries and associated firms can manipulate revenues. For example, firm A and B are controlled by firm C. Firm A is forced to buy its input from firm B at a high price. As a result, A is unprofitable and B is very profitable.

Keiretsu

In Japan, a number of independent but related companies centered on and financed by a single bank and/or a joint stock company. That is, the institution (and no other) provides financing for companies in the keiretsu. There are two main types of keiretsu. A horizontal keiretsu is essentially a diversified conglomerate; that is, it may have companies in several, completely unrelated industries so as to reduce the risk of loss if one industry or other has a bad year. A vertical keiretsu, on the other hand, is more centrally controlled such that companies in the same keiretsu provide all steps on the supply chain. For example, a mining company may sell a metal to a refinery in the same keiretsu, who then sells it to an auto company, who then sells cars to consumers. In Japan, these consumers are often employees of the very same keiretsu. Critics of this system contend that they are inefficient; proponents, however, argue that they are sustainable and have helped Japan recover from the post-war period. See also: Japanese miracle, Zaibatsu, Chaebol.

keiretsu

a Japanese term relating to a network of customers and their suppliers working within a related industry, or with a single customer. Developed by the multinational organizations in Japan initially with the idea of exercising control over suppliers. Kereitsu has developed to mean closer links between customer and supplier and includes the sharing of technologies, of skilled employees and of product development. See SUPPLIER DEVELOPMENT, LEAN MANUFACTURING.
References in periodicals archive ?
Whereas the Chaebol has more of a conglomerate structure Keiretsus are either horizontally diversified or vertically integrated.
Unlike Keiretsus, the Chaebols do not have an internal financial institution because Korean law prohibits any business group from owning or controlling its own banks.
Support for this risk-sharing motive of keiretsus has been provided in recent research by DeWinter (2003).
Keiretsus are more likely to focus on the maximization of market share (rather than emphasize profits and dividends) than their non-keiretsu counterparts (Brouthers/Werner 1990).
Horizontal keiretsu are business alliances in which member firms are integrated by such mechanisms as cross-appointments of directors and executives, cross-shareholdings, and joint projects.
Because the closest and most tightly allied members in a horizontal keiretsu were part of the President's Council, this definition was most likely to capture any information effect.
The stronger firms are prevented from doing too well and the weaker firms are prevented from hitting extreme lows, due to a web of constraints that keiretsu networks place on their member firms as group members pay an insurance premium for the safety net that insulates each of them from the never-too-distant specter of business adversity (Lincoln et al.
All these factors have led some to suggest that the notion of a keiretsu as a way of doing business is dying.
Despite problems associated with high costs of doing business, staffing, keiretsu business relationships, exclusionary practices, and complex distribution systems, many American firms succeed.
The concept, known as lifetime employment, shushin koyo seido, was spawned by the social reciprocity and familistic values of the Japanese culture and nurtured by keiretsus.
On the other hand, Japan's Keiretsus have benefited from the practice of "cross-stock sharing", whereby member companies own some stocks of other member companies.
This corporate structure is known as the financial or horizontal keiretsu.