A keiretsu is a set of companies with interlocking business relationships and shareholdings.
Keiretsu in Japan
The term is Japanese (系列, "ei" pronounced as in "weigh") for "system" or "series," and the prototypical keiretsu are those which appeared in Japan during the "economic miracle" following World War II. Before Japan's surrender, Japanese industry was controlled by large conglomerates called zaibatsu. The Allies dismantled the zaibatsu in the late 1940s, but the companies formed from the dismantling of the zaibatsu re-interlinked 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 to some extent as well. The major postwar keiretsu, which still exist today, are:
The major keiretsu were each centered around one bank, which lent money to the keiretsu's member companies and held equity positions in the companies as well. Each central bank had great control over the companies in the keiretsu and acted as a monitoring entity as well as an 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.
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 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. Additionally, many companies from outside the keiretsu system, such as Sony, began outperforming their counterparts within the system.
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 the keiretsu 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.
Keiretsu outside Japan
The keiretsu model of Japan has not appeared outside Japan, but many non-Japanese businesses are described as keiretsu, such as the Virgin Group (UK), Samsung (South Korea), and Tata Group (India). Airline alliances such as oneworld and the Star Alliance have also been described as keiretsu. Generally, these groups exhibit more top-down management, centralized control or (in the case of airline alliances) looser equity ownership connections than do "true" keiretsu.
The venture capital firm of Kleiner, Perkins, Caufield & Byers (KPCB), a major player in the dot com boom, describes its investment portfolio as a keiretsu. Like the Japanese keiretsu of the postwar period, KPCB has invested in independent companies covering a number of business sectors, and encouraged business connections between those companies, making its portfolio one of the closest analogues to a keiretsu outside Japan.
Further reading
