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Understand the reasoning and rational of the "Keiretsu" families.

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Introduction

With that understanding, one can better understand the reasoning and rational of the "Keiretsu" families. Keiretsu families are groups of businesses organized together as strategic alliances, and make up the backbone of Japanese industrial organization. An American corporation is forced to maximize profits to satisfy stockholders. Japanese corporations, by joining a keiretsu, can be spared this pressure of chasing short sighted profits because fully 78% of stock is owned by members of the keiretsu.3 Rather than profits, the keiretsu members want certain preferential treatment as customers and suppliers of the corporation.4 In order to understand how the 'keiretsu' works, and how it gives Japan a near insurmountable strategic advantage in empire building (strategic conquest of markets), I will discuss the role of the keiretsu in each stage of industry, and show its impact given that role. Initial Investment. In order for a business to make a capital investment, it requires financial capital. This is true in all market based economies, and Japan is no exception. One corporate member of a given Keiretsu group (such as the Toyota Motor Keiretsu) has a financial institution. This financial institution provides loans to members of the keiretsu at BELOW MARKET PRICE (below the interest paid by those that rely on market funds). One might wonder how the financial institution is able to profit by providing below market interest loans. ...read more.

Middle

As one studies Japanese strategic trade, it becomes apparent that the Japanese market is very susceptible to market penetration by direct foreign investment in Japan (which one would think would be very successful given the price gouging by suppliers of the keiretsus). However, as we will see in the next section, such market penetration is not as easy as one might first believe. Clearly the biggest strength to Japan's approach to trade is that it has succeeded in giving Japanese producers a significant strategic advantage in penetrating markets. By enabling Japanese producers to produce at artificially low costs, the keiretsu has given Japan a strong position in many markets around the world, including the world's largest market-the United States. This market share has translated into huge trade surpluses, and has therefore gained very large capital reserves for Japan. These capital reserves enable Japan to make large investments in education, infrastructure (Japan is in the middle of a five year plan to invest $2 Trillion in its infrastructure), etc. With the economic difficulties the Japanese are currently facing, the huge capital reserves can be used to provide a strong fiscal stimulus to their economy (in fact, the Japanese are now running a larger fiscal deficit as a percentage of GDP than is the United States). Another strength to Japan's approach to trade is in the validation of 'interventionism', or 'communitarian capitalism'. ...read more.

Conclusion

It is important to note that, just as the US auto industry is not a monolithic entity, the keiretsu is not either. It is an association of 'independent firms'. However, since vast amounts of the stock of these 'independent firms' are owned by the other members of the kereitsu, the firms are very greatly influenced by the decisions of the keiretsu. As I researched the Japanese approach to trade, I noticed an interesting historical reference. Prior to Adam Smith's landmark book, Wealth of Nations, in 1776, nations emphasized the accumulation of market share and capital wealth (gold). Adam Smith put forth the idea that a nation's true economic strength could be found in its level of consumption and leisure, not in the accumulation of wealth or market share. It was the dawn of 'capitalism', and the apparent death of 'mercantilism'. Since that time we have come to accept and assume the productive superiority of 'profit maximizing capitalism', and the virtue of consumption and leisure maximization. Japan is not 'mercantilism', as the monarch has been replaced with the 'keiretsu'. However, the similarities in the Japanese approach to trade to that of mercantilism is striking. Perhaps the keiretsu has replaced governments as 'empire builders'... perhaps Lester Thurow is correct in his prediction that either 'individualistic capitalism' or the Japanese approach will survive, and the other will be forced to adapt and play by the survivor's rules... and perhaps the keiretsu is not a 'profit maximizer', but a modern day 'empire builder'. ...read more.

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