หน้า 169
Within each horizontal keiretsu, a main bank performs several functions. Its most important role is providing funds for company operations, expansion, and R&D. First, these banks provide more than two-thirds of the financial needs of keiretsu-affiliated companies. Second, member companies frequently hold stock in sister companies (known as stable cross-shareholdings). Main banks are among the nation’s largest shareholders for such firms, providing considerable stability for company management interested in long-term growth strategies. Third, main banks provide an important audit function for member companies in monitoring corporate performance and evaluating risk. Fourth, main banks provide the best source of venture capital for member companies interested in launching new but risky ventures. For instance, Sumitomo Bank provided massive start-up investments in member company NEC’s initiative to capture the semiconductor market. Finally, main banks serve as the “company doctor” in rescuing companies that are facing bankruptcy. Since corporate bankruptcy can threaten public confidence in Japan’s economic system, not just a specific business group, main banks often quietly provide financial support to keep ailing companies going until the firm can be re-organized or the problem resolved. This financial commitment to member companies can also create trouble for the keiretsu, however, when the main bank is required to bail out a non-competitive company that should perhaps be sold off or dissolved.
หน้า 170
The trading company, or sogo shosha, provides member companies with ready access to global markets and distribution networks. These companies (e.g., Mitsubishi Shoji, Sumitomo Busan) maintain offices throughout the world and are continually on the lookout for new or expanded markets. At the same time, their field offices collect and analyze market and economic intelligence that can be used by member companies to develop new products or otherwise get a jump on the competition. They frequently
assist member companies with various marketing activities as well, and facilitate imports into Japan for their business customers. In fact, historically, Japanese trading companies have been responsible for almost half of Japan’s imports and three-fifths of its exports. Finally, the sogo shosha often provide significant credit (through the group’s main bank) for small and medium-sized companies involved in business activities with member companies, again getting a jump on competitors that operate further from lines of credit.
Finally, although hundreds of companies may be affiliated with one keiretsu, only the principal companies are allowed to join the Presidents’ Council (shacho-kai, or kinyokai in the case of Mitsubishi). This council (typically consisting of the CEOs of the top twenty to thirty group companies) meets monthly to discuss principal strategies for the group, as well as issues of coordination across the various sister companies. Since council meetings are private and no records are maintained, little is understood about how such councils actually work. At the very least, however, these meetings facilitate extensive cooperation across member companies on developing group strategy and group solidarity, as well as mediating disagreements across member companies.
To many observers, the very structure of these conglomerates seems to provide an unfair advantage in global competition. To see how this might work, consider the example of Kirin Holdings Company, a member of the Mitsubishi keiretsu. While Kirin produces a wide array of consumer products, including soft drinks, pharmaceutics, and health foods, they are perhaps best known for beer. To produce, bottle, and distribute beer, Kirin needs help from a multitude of sources. In many cases, it can get this help from other sister companies on a long-term reliable manner (see Exhibit 6.5).
When Kirin Holdings Company needs glass for its bottles, it contacts Asahi Glass, a Mitsubishi company. When Kirin needs aluminum for its cans, it contacts Mitsubishi Aluminum. When Kirin needs plastic to bottle its soft drinks, it contacts Mitsubishi Plastics. When Kirin needs paper for labels, it contacts Mitsubishi Paper. When Kirin needs financing for its operations, it contacts Mitsubishi Bank. When Kirin needs to construct new facilities, if contacts Mitsubishi Construction. When Kirin needs cars and
trucks to help distribute its products, it contacts Mitsubishi Motors. And when Kirin needs global distribution of its products, it contacts Mitsubishi Shoji. Is this smart coordination and control by the keiretsu managers or restraint of trade since other (largely foreign) firms oftentimes cannot break through the barriers to seek some of the business? What might foreign firms do to get inside the keiretsu network?
หน้า 171
This interlocking set of companies that comprise a keiretsu like Mitsubishi can create a considerable competitive advantage in the marketplace. While comparable examples of global sourcing, integrated manufacturing, and multinational marketing can be found in the West, it is questionable whether these companies approach the keiretsu model in terms of integration and cooperation. What makes the keiretsu system unique is that it represents an entire social system in which national culture, government
policies, corporate strategies, and management practices are fully integrated, mutually supportive, and reinforced through incentives and rewards that make the entire enterprise run smoothly over the long run. Thus, while some similarities exist, and while Western multinationals frequently pursue vertical integration to achieve operating efficiencies, it would be misleading to claim that Western companies have adopted the Japanese business model as their own. Neither their cultures nor government regulations in many cases would allow it.
When most Westerners think of a keiretsu, they have in mind the horizontal variety discussed above. However, the vertical (or pyramid) keiretsu can be just as powerful, if less well known. Key vertical keiretsu include the major Japanese automobile firms such as Toyota, Nissan, and Honda, as well as some of the major electric giants like Sony and Panasonic (including Quasar and National brands). An illustration of the organization structure of a vertical keiretsu is shown in Exhibit 6.6. As noted above, a vertical keiretsu consists of a major company surrounded by a large number of smaller firms that either act as suppliers or distributors for the big firm.
หน้า 169
Within each horizontal keiretsu, a main bank performs several functions. Its most important role is providing funds for company operations, expansion, and R&D. First, these banks provide more than two-thirds of the financial needs of keiretsu-affiliated companies. Second, member companies frequently hold stock in sister companies (known as stable cross-shareholdings). Main banks are among the nation’s largest shareholders for such firms, providing considerable stability for company management interested in long-term growth strategies. Third, main banks provide an important audit function for member companies in monitoring corporate performance and evaluating risk. Fourth, main banks provide the best source of venture capital for member companies interested in launching new but risky ventures. For instance, Sumitomo Bank provided massive start-up investments in member company NEC’s initiative to capture the semiconductor market. Finally, main banks serve as the “company doctor” in rescuing companies that are facing bankruptcy. Since corporate bankruptcy can threaten public confidence in Japan’s economic system, not just a specific business group, main banks often quietly provide financial support to keep ailing companies going until the firm can be re-organized or the problem resolved. This financial commitment to member companies can also create trouble for the keiretsu, however, when the main bank is required to bail out a non-competitive company that should perhaps be sold off or dissolved.
หน้า 170
The trading company, or sogo shosha, provides member companies with ready access to global markets and distribution networks. These companies (e.g., Mitsubishi Shoji, Sumitomo Busan) maintain offices throughout the world and are continually on the lookout for new or expanded markets. At the same time, their field offices collect and analyze market and economic intelligence that can be used by member companies to develop new products or otherwise get a jump on the competition. They frequently
assist member companies with various marketing activities as well, and facilitate imports into Japan for their business customers. In fact, historically, Japanese trading companies have been responsible for almost half of Japan’s imports and three-fifths of its exports. Finally, the sogo shosha often provide significant credit (through the group’s main bank) for small and medium-sized companies involved in business activities with member companies, again getting a jump on competitors that operate further from lines of credit.
Finally, although hundreds of companies may be affiliated with one keiretsu, only the principal companies are allowed to join the Presidents’ Council (shacho-kai, or kinyokai in the case of Mitsubishi). This council (typically consisting of the CEOs of the top twenty to thirty group companies) meets monthly to discuss principal strategies for the group, as well as issues of coordination across the various sister companies. Since council meetings are private and no records are maintained, little is understood about how such councils actually work. At the very least, however, these meetings facilitate extensive cooperation across member companies on developing group strategy and group solidarity, as well as mediating disagreements across member companies.
To many observers, the very structure of these conglomerates seems to provide an unfair advantage in global competition. To see how this might work, consider the example of Kirin Holdings Company, a member of the Mitsubishi keiretsu. While Kirin produces a wide array of consumer products, including soft drinks, pharmaceutics, and health foods, they are perhaps best known for beer. To produce, bottle, and distribute beer, Kirin needs help from a multitude of sources. In many cases, it can get this help from other sister companies on a long-term reliable manner (see Exhibit 6.5).
When Kirin Holdings Company needs glass for its bottles, it contacts Asahi Glass, a Mitsubishi company. When Kirin needs aluminum for its cans, it contacts Mitsubishi Aluminum. When Kirin needs plastic to bottle its soft drinks, it contacts Mitsubishi Plastics. When Kirin needs paper for labels, it contacts Mitsubishi Paper. When Kirin needs financing for its operations, it contacts Mitsubishi Bank. When Kirin needs to construct new facilities, if contacts Mitsubishi Construction. When Kirin needs cars and
trucks to help distribute its products, it contacts Mitsubishi Motors. And when Kirin needs global distribution of its products, it contacts Mitsubishi Shoji. Is this smart coordination and control by the keiretsu managers or restraint of trade since other (largely foreign) firms oftentimes cannot break through the barriers to seek some of the business? What might foreign firms do to get inside the keiretsu network?
หน้า 171
This interlocking set of companies that comprise a keiretsu like Mitsubishi can create a considerable competitive advantage in the marketplace. While comparable examples of global sourcing, integrated manufacturing, and multinational marketing can be found in the West, it is questionable whether these companies approach the keiretsu model in terms of integration and cooperation. What makes the keiretsu system unique is that it represents an entire social system in which national culture, government
policies, corporate strategies, and management practices are fully integrated, mutually supportive, and reinforced through incentives and rewards that make the entire enterprise run smoothly over the long run. Thus, while some similarities exist, and while Western multinationals frequently pursue vertical integration to achieve operating efficiencies, it would be misleading to claim that Western companies have adopted the Japanese business model as their own. Neither their cultures nor government regulations in many cases would allow it.
When most Westerners think of a keiretsu, they have in mind the horizontal variety discussed above. However, the vertical (or pyramid) keiretsu can be just as powerful, if less well known. Key vertical keiretsu include the major Japanese automobile firms such as Toyota, Nissan, and Honda, as well as some of the major electric giants like Sony and Panasonic (including Quasar and National brands). An illustration of the organization structure of a vertical keiretsu is shown in Exhibit 6.6. As noted above, a vertical keiretsu consists of a major company surrounded by a large number of smaller firms that either act as suppliers or distributors for the big firm.
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