Japan: Economics in Everyday Life

25. What Are Keiretsu and Why Do Some U.S. Companies Dislike Them?

25 What Are and Why Do Some U.S. Companies Dislike Them? Gary S. Kikuchi General Motors, General Electric, General Tire, and General Dynamics are well known U.S. corporations . Similarly, Mitsubishi Bank, Mitsubishi Corporation, Mitsubishi Heavy Industries, and Mitsubishi Motors are well known Japanese business firms. Some corporations share the same name because they share a common history (e.g., Westinghouse Electric and Westinghouse Air Brake). Others share the same name by coincidence (e.g., American Airlines, American Express, and American Fence) and may even do some business with each other, but are not affiliated. In contrast, the four Japanese corporations that share the Mitsubishi name, even though they are not in the same line of business, are part of a large group of affiliated companies. In Japan, such large groups are called keiretsu. Horizontal versus Vertical Keiretsu The Mitsubishi Group is a horizontal keiretsu. The horizontal keiretsu is a diverse group of companies that tend to borrow 185 Keiretsu mainly from a primary lender (the main bank), hold one another ’s shares, and sometimes exchange personnel; the presidents , chief executives, and directors of the core corporations meet monthly. Presently there are six major horizontal keiretsu in Japan. Besides Mitsubishi (main bank—Mitsubishi Bank), the others are Mitsui (Sakura Bank), Sumitomo (Sumitomo Bank), Fuyo (Fuji Bank), Dai-Ichi-Kangyo (Dai-Ichi-Kangyo Bank), and Sanwa (Sanwa Bank). The exact membership of each horizontal keiretsu is difficult to determine because individual corporations may be close to or distant from the core. The Mitsubishi Group, for example, has twenty-nine members in its core as identified by attendance at monthly meetings, and twenty-two of these corporations include the word “Mitsubishi” in their name. About 20 percent of the bank loans issued to these core firms in 1987 came from either the Mitsubishi Bank, Mitsubishi Trust and Banking, Meiji Mutual Life and Insurance, or Tokio Marine and Fire Insurance, all core members of the Mitsubishi Group. Mitsubishi Corporation, a trading company, is the chief distributor, exporter, and importer for the group. It buys about 20 percent of the goods and services produced by other members of the group, and about 10 percent of its sales are to other members of the group. On average , about 35 percent of the shares of any given member of the group is held by other members of the core group. If we include all the businesses that both borrow primarily from Mitsubishi Bank and have cross-holdings of shares with other members of the group, the number of affiliates increases to 217. But because many of these firms also deal with other keiretsu, it becomes increasingly difficult to classify the marginal firms as members of any particular keiretsu. Therefore, it is best to think only of the core group included in monthly meetings when we refer to a particular horizontal keiretsu. The other type of keiretsu is the vertical keiretsu. A vertical keiretsu is a cluster of firms linked through the supply and distribution chains of a principal manufacturer. Toyota, the wellknown automobile manufacturer, is an example of this type of keiretsu. Toyota itself belongs to Mitsui’s bank, a major horizon186 Japan: Why It Works, Why It Doesn’t tal keiretsu. But Toyota deals mainly with the same parts suppliers and dealers which, in turn, deal either exclusively or principally with Toyota. This special relationship is a vertical keiretsu. In 1991, Toyota Motors produced 4 million cars compared to the 3.7 million cars produced by General Motors. GM had 750,000 employees compared to 73,000 for Toyota. The large numerical difference in their employees is not because Toyota workers were 10 times as productive as GM workers; the explanation is that GM produces more than half of its auto parts inhouse , whereas Toyota and other Japanese automobile companies buy most (about 80 percent) of their parts from other independent, but affiliated companies. Toyota may also hold large blocks of shares in these companies . Cross-holding of stocks among Japanese corporations is common. In Japan less than 25 percent of corporate stocks is owned by individuals and about 65 percent of the stocks is owned by banks and other Japanese companies. (Foreign individuals and corporations own another 9 percent of Japanese corporate stocks.) By contrast, in the United States, more than 50 percent of corporate stocks are owned by individuals. In addition to the first-tier parts suppliers that deal directly...