Keiretsu is a network of Japanese manufacturers, distributors, financiers, and supply chain partners that work closely together. They work closely together to help each other succeed. However, they are financially independent. Members have strong historical associations and cross-shareholdings.
Put simply; Keiretsus are informal business groups whose members work closely together.
Although the Japanese word Keiretsu (系列) means ‘headless combine,’ in business people tend to use it with the meaning ‘partnership.’ They also use it with the meaning ‘extended enterprise’ or alliance.’
An article in the Economist has the following definition of the term:
“It is the name given to a form of corporate structure in which a number of organizations link together, usually by taking small stakes in each other and usually as a result of having a close business relationship, often as suppliers to each other.”
If Company A owns a bit of Company B, the two firms are more likely to work successfully. If Company B also has a stake in Company A, their chances of success are even greater.
In other words, they will try to reach a way of working that is of mutual benefit.
If Company A’s supplier is Company B, for example, they both aim for the success of the partnership.
Keiretsu – vertical and horizontal
There are horizontal and vertical Keiretsus. The horizontal ones involve companies in different industries. Vertical ones involve companies upstream and downstream.
Mitsubishi Corp. and Sumitomo Corp., for example, are members of a horizontal keiretsu. Toyota Corp. and Sony Corp., on the other hand, belong to a vertical Keiretsu.
Keiretsu offers protection
If your company belongs to a Keiretsu, it owns small portions of other firms. They also own a stake in your firm.
All members use a core bank. Overall, the group helps insulate each member from takeover attempts and stock market fluctuations.
This protection, therefore, allows the member companies to make long-term plans. They can also undertake long-term projects.
This type of informal corporate group is a key element of the Japanese manufacturing industry.
Video – Keiretsus
This Angry Japanse Man Co. video explains what a Keiretsu is. The video is a school project. The second half has examples of the different products that Mitsubishi markets.