• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

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

Extracts from this document...


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.


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.


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.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Critically evaluate the perceived competitive starategies of the five clothing retail outlets, namely Edgars, ...

    "If we make a success here economically, then the rest of Africa will certainly benefit," said Erich Leistner, a research fellow at the Africa Institute. The South African investment trend has been growing since 1993, just after passage of an interim constitution signaled the death knell of apartheid and brought an end to sanctions.

  2. What do you understand to be the concept of entrepreneurship and why has it ...

    or even college of entrepreneurship, or the constituency for a new service provided by a nonprofit agency. Second, entrepreneurship requires the devotion of the necessary time and effort. Only those going through the entrepreneurial process appreciate the significant amount of time and effort it takes to create something new and make it operational.

  1. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    Until recently, most of the literature found an overall dominance of country effects over industry and common market effects. For example, Beckers et al (1992, 1998) have shown that differences in the industrial makeup of countries only plays a minor role in explaining country correlations.

  2. How Capitalism works.

    Many countries have laws that prohibit monopolies and cartels. Smaller firms that cannot afford losses cannot compete. Income in a capitalist economy depends chiefly on the supply of and demand for skills that society values most. People who have skills that are in scarce supply and worth a lot in the market can attract high incomes.

  1. Split Votes: A Nation Divided on the Marijuana/Drug Legalization Debate

    He rebuts this argument by saying that more people use tobacco and alcohol than illicit drugs, and that more people use marijuana, "a substance that has an active lobby for legalization and where possession has largely been de facto decriminalized by many big-city police departments," than harder drugs like cocaine

  2. analyze an organization (ba)

    The airline industry is constrained by the price and excessive promotion of the above substitutes. Heavy promotion of the cheap UK to US calls works against airlines. It could be concluded, that airline industry experiences heavy pressure from substitute products.

  1. Chinese car market overview. Citroen case study

    Current local content requirements on vehicle manufacturers range from 40 to 80 percent. � These commitments combined with the other market-opening steps that China will take, such as cutting tariffs, eliminating quotas and permitting our companies to distribute products in China, will result in better access for our automotive exports and eliminate false incentives or requirements to use domestic goods.

  2. Transaction Cost Theory

    with efficiency, that "under certain conditions planned coordination within a firm could be more efficient". But Coase, like Marshall, was constrained from developing promising concepts for analysing business organization by ... the specter of inconsistency with the equilibrium theory of price (Best, 1990, p.112).

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work