Keiretsu: Understanding, Types, and Real-world Examples
BP
Summary:
Explore the intricacies of keiretsu, a Japanese business network, where companies collaborate closely, sharing expertise and sometimes equity stakes. Discover the historical context, types, advantages, and disadvantages of keiretsu, along with insights on creating your own keiretsu-like partnerships.
Understanding keiretsu
Keiretsu, a Japanese term for a collaborative business network, emerged in response to the reorganization of Japanese companies after World War II. Previously dominated by zaibatsus, powerful family-run conglomerates, the restructuring aimed to foster cooperation and break down monopolistic practices.
Japanese corporations value close ties, believing that mutual cooperation is beneficial. Decades later, keiretsus remain integral to Japan’s economy, influencing global business practices in a more informal manner outside the country.
In 1996, Jeffrey Dyer noted how Chrysler’s collaboration with suppliers resembled an American keiretsu, indicating its global impact.
Types of keiretsu
The keiretsu system adopts either a horizontal or vertical integration model.
Horizontal Keiretsu:
- Supplier-Customer Keiretsu: This form links manufacturers with their suppliers and customers horizontally, fostering long-term relationships and mutual support.
- Financial Keiretsu: Financial institutions like banks and investment firms form horizontal alliances with corporations, offering financial support and services.
- Industrial Keiretsu: Companies within the same industry or related sectors collaborate horizontally to share resources, technology, and market insights.
Vertical Keiretsu:
- Production Vertical Keiretsu: Manufacturers, suppliers, and distributors collaborate vertically to streamline production processes, ensuring quality control and efficient supply chain management.
- Distribution Vertical Keiretsu: Wholesalers, retailers, and logistics companies form vertical partnerships to enhance distribution networks and market penetration.
- Technology Vertical Keiretsu: Companies across different technological stages, such as research institutions, manufacturers, and marketers, integrate vertically to leverage technological advancements and enhance product development.
How to engineer your own keiretsu
While keiretsus are deeply ingrained in Japanese business culture, companies in the West can learn from this model to strengthen supplier relationships.
Incorporate short-term and long-term thinking
Developing long-term relationships requires ensuring suppliers’ current competitiveness. Collaborate to achieve shared cost-reduction benefits, demonstrating commitment to lasting partnerships.
Get to know your suppliers
Understanding suppliers’ processes is crucial for improvement. Instead of outsourcing, establish joint ventures on key components and visit suppliers’ workplaces.
Build trust with your suppliers
Communicate mutual benefits to build trust. Express how the relationship aids suppliers in improving operations and competitiveness.
Practice explicit and implicit communication
Balance explicit and implicit communication to prevent mistrust or misunderstandings, fostering effective collaboration.
Assess your portfolio of suppliers
Identify and improve suppliers based on potential for global competitiveness, scoring performance on quality, cost, delivery, people, and development.
Build personal relationships with your suppliers
Cultivate personal relationships with supplier management and employees. Collaborate and shadow suppliers on the shop floor to enhance problem-solving.
Give suppliers opportunities to improve
Offer struggling suppliers opportunities for improvement rather than immediate switches, fostering a culture of continuous enhancement.
Involve suppliers in product development
Integrate suppliers into development teams and process improvement activities to enhance competitiveness across the supply chain.
Example of keiretsu
Mitsubishi, a prominent player in the Japanese horizontal keiretsu, exemplifies the collaboration’s scope. The Bank of Tokyo-Mitsubishi, Mitsubishi Motors, and Mitsubishi Trust and Banking form the core group, working together to distribute goods globally and establish keiretsu companies internationally.
Global impact of keiretsu
While keiretsus originated in Japan, their influence has transcended borders. The collaborative spirit of keiretsu has inspired businesses worldwide, albeit in adapted forms. Notable examples include the strategic alliances formed by major European and American corporations, echoing the cooperative principles of keiretsu.
For instance, BMW’s partnerships with various suppliers and technology companies mirror the collaborative essence of keiretsu. These alliances have contributed to BMW’s innovation in electric vehicles and autonomous driving technologies.
BMW’s collaborative ecosystem
BMW’s approach to forming alliances resembles a keiretsu, where suppliers, technology partners, and manufacturers work closely to achieve common goals. This collaborative ecosystem has played a crucial role in BMW’s position as a leader in the automotive industry.
Similarly, American tech giants like Apple and Google have established keiretsu-like relationships with their extensive network of app developers, content creators, and hardware suppliers. These partnerships enhance product development, streamline supply chains, and foster innovation.
Challenges in modern keiretsu structures
While the keiretsu model has historically been successful, adapting it to the challenges of the modern business landscape poses certain complexities. In the era of rapidly evolving technology and global markets, traditional keiretsu structures encounter hurdles that demand innovative solutions.
Technological integration and keiretsu
One challenge lies in integrating new technologies within the keiretsu framework. As industries evolve, incorporating digitalization, artificial intelligence, and automation becomes imperative. Companies within a keiretsu must navigate the complexities of technological integration to stay competitive in the modern landscape.
For instance, a keiretsu in the electronics industry may face challenges in integrating cutting-edge technologies into their production processes. Overcoming these challenges requires collaborative efforts to invest in research and development, ensuring that the keiretsu remains at the forefront of technological advancements.
Globalization and diverse markets
Another challenge involves navigating diverse global markets. Keiretsus that once focused primarily on the domestic market must adapt to the complexities of international trade and diverse consumer preferences. This requires strategic planning, market research, and a flexible approach to accommodate the varied needs of consumers worldwide.
Conclusion
In the ever-evolving landscape of global business, the concept of keiretsu continues to showcase the power of collaboration. From its origins in post-war Japan to its impact on businesses worldwide, keiretsu illustrates the enduring value of close-knit networks and shared goals.
Frequently asked questions
What is the historical context behind the emergence of keiretsu?
The keiretsu system originated as a response to the reorganization of Japanese companies after World War II. Explore the historical context that led to the development of keiretsu.
How do horizontal and vertical keiretsu models differ?
Understand the distinctions between horizontal and vertical keiretsu structures, exploring how they function and the types of companies involved in each model.
Can keiretsu-like partnerships be established outside of Japan?
Learn about the global impact of keiretsu and whether businesses outside Japan can form similar collaborative networks, adapting the principles of keiretsu to different cultural and regulatory contexts.
What are the challenges associated with modern keiretsu structures?
Explore the complexities and hurdles that traditional keiretsu structures face in the contemporary business landscape, including issues related to technological integration and navigating diverse global markets.
How can companies in the West benefit from the keiretsu model?
Discover insights on how Western companies can leverage the principles of keiretsu to strengthen supplier relationships, enhance collaboration, and achieve long-term benefits in their business networks.
Key takeaways
- Keiretsu originated post-WWII, replacing zaibatsus in Japan.
- Types include horizontal (diverse industries) and vertical (manufacturers, suppliers).
- Advantages include enhanced efficiency and reduced competition.
- Disadvantages involve slow adaptation and potential for risky behavior.
- Creating a keiretsu-like model requires trust, communication, and supplier collaboration.
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