Keiretsu - Nature of The Keiretsu - in Japan

In Japan

During the occupation of Japan, under the Supreme Commander of the Allied Powers, General Douglas MacArthur, a partially successful attempt was made to dissolve the zaibatsu in the late 1940s. Sixteen zaibatsu were targeted for complete dissolution, and 26 more for reorganization after dissolution. However, the companies formed from the dismantling of the zaibatsu were later reintegrated. The dispersed corporations were reinterlinked through share purchases to form horizontally integrated alliances across many industries. Where possible, keiretsu companies would also supply one another, making the alliances vertically integrated, as well. In this period, official government policy promoted the creation of robust trade corporations that could withstand heavy pressures from intensified trade competition.

The major keiretsu were each centered around one bank, which lent money to the keiretsu member companies and held equity positions in the companies. Each bank had great control over the companies in the keiretsu and acted as a monitoring and emergency bail-out entity. One effect of this structure was to minimize the presence of hostile takeovers in Japan, because no entities could challenge the power of the banks.

Although the divisions between them have blurred in recent years, there have been nine major postwar keiretsu:

Name Bank Major group companies
Mitsubishi Mitsubishi Bank (until 1996)
Bank of Tokyo-Mitsubishi (1996–2005)
Bank of Tokyo-Mitsubishi UFJ (2006– )
Mitsubishi Trust and Banking
Financial: Mitsubishi Corporation, Tokio Marine and Fire Insurance, Mitsubishi Estate, Meiji Mutual Fund
Construction: Pacific Consultants International
Food: Kirin Brewery
Electronics: Mitsubishi Electric, Mitsubishi Precision
Trading and Commerce: Mitsubishi Shoji
Cars: Mitsubishi Motors, Mitsubishi Heavy Industries, Mitsubishi Fuso Truck and Bus Corporation
Petroleum: Nippon Oil, Mitsubishi Oil, Mitsubishi Nuclear Fuel
Precision Machinery: Nikon
Chemicals: Mitsubishi Chemical, Mitsubishi Gas Chemical, Mitsubishi Rayon Co., Ltd., Mitsubishi Materials Corp., Mitsubishi Plastics Industries, Asahi Glass, Nippon Synthetic Chemical Industries (Nippon Gosei)
Paper: Mitsubishi Paper Mills Ltd.
Iron and Steel: Mitsubishi Steel
Shipping: Nippon Yusen
Mitsui Mitsui Bank (until 1990)
Sakura Bank (1990–2001)
Sumitomo Mitsui Bank (2001– )
Sony Financial,
Sony Bank
Financial: Mitsui Real Estate, Mitsukoshi, Mitsui Mutual Life, Mitsui Marine & Fire
Food: Nippon Flour Mills, Mitsui Sugar, Suntory
Chemicals: Fuji Photo Film, Mitsui Toatsu Chemicals, Mitsui Petrochemical Industries, Toagosei Chemical Industries, Denki Kagaku Kogyo, Daicel Chemical Industries, Mitsui Pharmaceuticals, Mitsui Toatsu Fertilizers, Mitsui Toatsu Dyes, Toray
Trading and Commerce: Mitsui Bussan
Petroleum: General Sekiyu, Kyokuto Petroleum Industries
Electronics: Sony Corporation, Yaussa Corporation, Ibiden Company, Toshiba
Iron and Steel: Japan Steel Works
Gaming: Sony Computer Entertainment
Entertainment: Sony Pictures Entertainment, Sony Music Entertainment
other Sony subsidiaries, and Media Nusantara Citra
Sumitomo Sumitomo Bank (until 2001)
Sumitomo Mitsui Bank (2001– ), Sumitomo Trust and Banking
Financial: Sumitomo Corporation, Sumitomo Corporation of America, Sumitomo Mitsui Financial Group, Sumitomo Trust & Banking, Sumitomo Life Insurance Co., Sumitomo Real Estate, Mitsui Sumitomo Insurance Co., Ltd., Sumitomo Realty & Development Co., Ltd., Presidio Ventures,

Construction: Sumitomo Mitsui Construction Co., Ltd., Sumitomo Densetsu, Sumitomo Osaka Cement Co., Ltd.,
Food: Asahi Breweries
Rail: The Sumitomo Warehouse Co., Ltd., Hanshin Railway, Keihan Railway, Nankai Railway
Trading and Commerce: Sumitomo Corporation
Cars: Mazda
Precise machinery: Sumitomo Heavy Industries, Ltd.,
Electronics: NEC, Sumitomo Electric Industries, Ltd.,
Iron and Steel: Sumitomo Metal Industries, Ltd., Mezon Stainless Steel Fzco., Sumitomo Light Metal Industries, Ltd.,
Chemicals: Sumitomo Chemicals, Nippon Sheet Glass Co., Ltd., Sumitomo Bakelite Co., Ltd., Sumitomo Rubber Industries, Ltd., Dainippon Sumitomo Pharma,
Mining: Sumitomo Metal Mining Co., Ltd.
Forestry: Sumitomo Forestry Co., Ltd.
Infrastructure: Nippon Koei

Fuyo Fuji Bank (until 2000)
Mizuho Bank (2000– )
Yasuda Trust and Banking
Yamaichi Securities
Financial: Yasuda Mutual Life, Yasuda Marine & Fire
Food: Nisshin Flour Milling, Sapporo Breweries
Precision Machinery: Canon, Hitachi, Ricoh
Trading and Commerce: Marubeni
Chemicals: Showa Denko, NOF Corporation, Kureha Chemical Industries, Nippon Sanso, Hitachi Chemical, Asahi Kasei
Rail: Tobu Railway
Vehicles: Yamaha, Nissan
Retail: Matsuya
Dai-Ichi Kangyo (DKB) Dai-Ichi Kangyo Bank (until 2000)
Mizuho Bank (2000– )
Kankaku Securities
Orient Group
Financial: Fukoku Mutual Life, Asahi Mutual Life, Nissan Marine & Fire, Taisei Marine & Fire
Electronics: Fujitsu, Hitachi, Fuji Electric, Yaskawa Electric, Nippon Columbia
Cars: Isuzu, Kawasaki Heavy Industries
Power Generation: Tokyo Electric Power
Petroleum: Showa Shell Sekiyu
Precision Machinery: Asahi Optical
Trading and Commerce: Seibu, Itochu,
Iron and Steel: Kawasaki Steel, Japan Metals, Kobe Steel
Chemicals: Denki Kagaku Kogyo-Mitsui Group, Nippon Zeon, Asahi Denka Kogyo, Sankyo Co., Lion Corporation, Kyowa Hakko Kogyo, Asahi Chemical Industries
Sanwa ("Midorikai") Sanwa Bank (until 2002)
UFJ Bank (2002–2006)
Bank of Tokyo-Mitsubishi UFJ (2006– )
Toyo Trust and Banking
Food: Itoham Foods, Suntory
Rail: Hankyu Railway, Keisei Railway
Steel: Kobe Steel, Nakayama Steel Works, Nisshin Steel
Precision Machinery: Konica Minolta, Hoya Corporation
Petroleum: Cosmo Oil
Electronics: Hitachi, Iwatsu Electric, Sharp Corporation, Nitto Denko, Kyocera
Trading and Commerce: Takashiama, Orix, Nissho Iwai
Chemicals: Ube Industries, Tokuyama Corp, Hitachi Chemical, Sekisui Chemical, Kansai Paint, Tanabe Seiyaku, Fujisawa Pharmaceutical, Daiso Co., Teijin, Unitika Fukusure
Cars: Hitachi Zosen Corporation
Retail: Takashimaya
Cinema: Toho
(Toyota Group)
Tokai Bank
Chuo Trust
Food: Kagome
Cars: Daihatsu, Suzuki Motor, Toyota
Steel: Daido Steel
Precision Machinery: Ricoh
Petroleum: Idemitsu Kosan
Electronics: Ushio Industries
Trading and Commerce: Matsuzakaya
Industrial Bank of Japan, New Japan Securities
Wako Securities
IBJ Securities
Cars: Fuji Heavy Industries
Precision Machinery: Ikegai, Riken
Chemicals: Nippon Soda, Chisso Corporation, Nissan Chemical, Tosoh Corporation, Hodogaya Chemical, Plas-Tech, Taihei Chemical, Japan Organo, Kuraray

Toyota is considered the biggest of the vertically integrated keiretsu groups. The banks at the top are not as large as normally required, so it is actually considered to be more horizontally integrated than other keiretsu.

The Japanese recession in the 1990s had profound effects on the keiretsu. Many of the largest banks were hit hard by bad loan portfolios and forced to merge or go out of business. This had the effect of blurring the lines between the individual keiretsu: Sumitomo Bank and Mitsui Bank, for instance, became Sumitomo Mitsui Banking Corporation in 2001, while Sanwa Bank (the banker for the Hankyu-Toho Group) became part of Bank of Tokyo-Mitsubishi UFJ.

Generally, these causes gave rise to a strong notion in the business community that the old keiretsu system was not an effective business model, and led to an overall loosening of keiretsu alliances. While they still exist, they are not as centralized or integrated as they were before the 1990s. This, in turn, has led to a growing corporate acquisition industry in Japan, as companies are no longer able to be easily "bailed out" by their banks, as well as rising derivative litigation by more independent shareholders.

Read more about this topic:  Keiretsu, Nature of The Keiretsu

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