keiretsu structures Simon Collinson Keiretsu are corporate groupings of Japanese frms characterized by long-term relations and cross-shareholdings. Members of the group maintain their operational independence but co- ordinate strategy and often exchange assets and resources with other frms in the group. Some studies view them as suffciently distinctive to represent a “third” form of business structure between “hierarchy” and “market” in Oliver Williamson’s terminology. There are broadly two types of keiretsu, the horizontal (kinyu) type and the vertical, manufacturing keiretsu. Both are undergoing change in an era of austerity for Japan. Kinyu are horizontal conglomerates encompassing a wide range of diversifed businesses, centered on a dominant bank and/or trading company (or “sogo shosha”). They are the descendents of the pre-War zaibatsu, most directly in the case of Mitsui, Mitsubishi, and Sumitomo, which survived the attempts of the allied forces to break them up in the aftermath of the Second World War (see ZAIBATSUSTRUCTURES). The remaining three, Fuyo/Fuji, Sanwa, and Dai-lchi Kangyo, are more like centralized holding companies. These top six alone directly accounted for about 5% of the Japanese labor force and 16% of total Japanese corporate sales in the early 1980s. But their cross-shareholding networks and their infuence across and down the main corporate hierarchies in Japan were far more prevalent than these fgures suggest. Vertical manufacturing keiretsu, such as Toyota, Hitachi, and Matsushita (now Pana- sonic) are comprised of fag-ship frms at the center of particular industry value chains. Struc- tured as co-operative, co-prosperity pyramids, they connect with preferred suppliers upstream and with distributors and retailers down- stream. Toyota once had 168 frst-tier suppliers, 4000 second-tier, and around 32 000 third-tier suppliers, according to one estimate. These have been rationalized during the extended recessionary period in Japan. Mitsubishi was said to be the most tightly woven keiretsu, based in Tokyo’s business district, Marunouchi (or “Mitsubishi Village”), with over 216 000 employees in businesses ranging throughout the fnancial, manufac- turing, services, and trading sectors from heavy engineering and oil to aerospace and beer. At its heart were 29 core companies, holding an average of 38% cross-shareholdings. Joint investments, co-operative R&D, and strategic alignment are still maintained by the exchange of personnel, information-sharing and close relationships from senior to junior management across the group. This alignment is orches- trated from the top, with the presidents and chairmen of the 29 core frms holding lunch meetings on the second Friday of each month as members of the Mitsubishi Kinyokai, or Friday Club. Embedded in the Japanese cultural values of loyalty and obligation, keiretsu structures have positive and negative effects on market effciency and the ease-of-doing-business in Japan. For Japanese frms, they represent trust- based, rather than price-based relationship networks. These support intensive interaction, the co-production of knowledge and enhanced synergies in the co-ordination of operations, product innovation, and competitive strate- gies. For foreign frms, however, they represent signifcant barriers to market entry. More generally, in an era of low economic growth in Japan, they are viewed as sources of path-dependency and inertia in the face of changing competitive environments. Some would argue they are anticompetitive struc- tures associated with weak shareholders and capital markets that have not traditionally emphasized return on investment (ROI) and dividends. Bibliography Abegglen, J.C. (2006) 21st Century Japanese Management: New Systems, Lasting Values, Palgrave Macmillan, Basingstoke. Collinson, S.C. and Rugman, A.M. (2008) The regional nature of Japanese multinational business. Journal of International Business Studies, 39 (2), 215–230. Hicheon, K., Hoskisson, R.E. and Wan, W.P. (2004) Power dependence, diversifcation strategy and performance in keiretsu affliated frms. Strategic Management Journal , 25 (7), 613–636. Wiley Encyclopedia of Management, edited by Professor Sir Cary L Cooper. Copyright © 2014 John Wiley & Sons, Ltd.