CHEMTECH

June 1997

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Copyright © 1997 by the American Chemical Society.

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The structure and operations of the keiretsu in the Japanese market and their importance to the Japanese economy have been studied extensively (5, 10-14). Certain characteristics of keiretsu organization and behavior may be applicable to an analysis of their effect on market access in Asia. The keiretsu are a key feature of Japan's economy, directly or indirectly affecting economic transactions in both upstream and downstream channels, within and across industries. In general, keiretsu are categorized as one of three types (12, 15, 16):

• Intermarket, horizontal, or financial keiretsu (which we will refer to as horizontal) are typically organized around a major bank, trading company, insurance company, and large manufacturing company.
• Intramarket, industrial, production, or vertical keiretsu (which we will refer to as vertical) are usually organized around a large independent company and its subsidiaries and affiliates. Vertical keiretsu are generally found in the auto, steel, and electronics industries and are characterized by extensive subcontracting networks.
• The distribution or marketing keiretsu include distribution, sales, and marketing firms in the wholesale and retail sectors.

According to the Japan Fair Trade Commission (JFTC), almost 20% of Japan's capital was held by six major corporate groupings (Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa, and Dai-Ichi Kangyo [DKB]) and their subsidiaries in Japan fiscal year (JFY) 1992 (17). By another estimate, ~50% of Japan's capital is controlled by all of the keiretsu (18). The keiretsu are composed of firms from a range of commercial and industrial fields, including trading companies, banks, suppliers, distributors, and retailers. There is a lot of overlap between and even within the groupings, because member companies function as suppliers to each other and establish the same kind of overlapping arrangements with other groups and nominally independent firms. Approximately one-half of small and medium-sized manufacturing firms are subcontractors to large manufacturers associated with a keiretsu (10). Through their extensive networks of affiliated firms, few areas of Japan's economy are untouched by keiretsu activities.

By several measures, despite press reports to the contrary, keiretsu ties appear to have strengthened somewhat rather than weakened in recent years. For example, the ratio of cross-shareholding for the six keiretsu groups rose from 43.3% in JFY 1989 to 44.1% in JFY 1991 and then declined slightly to 44.0% in JFY 1992 (Table 1). In 1992, the intragroup business relations ratio for the major horizontal groups ranged from a high of ~64% for Sumitomo to a low of just over 30% for Sanwa and Fuyo (Table 2). Most intragroup transactions involve the trading companies, according to the JFTC. With ties to tens of thousands of Japanese companies, including the keiretsu, the trading companies play a significant role in Japan's exports and imports, including domestic distribution activities. They are essentially gatekeepers for Japan's economy. In JFY 1993, the nine top trading companies handled $124 billion (34.8%) of Japan's exports and $134 billion (60.8%) of Japan's imports. Their total trade accounted for $258 billion (44.7%) of Japan's total worldwide trade of $577 billion. The trading companies, along with the banks and insurance companies, provide both horizontal and vertical leadership and integrating functions to the keiretsu. They provide key services (sourcing, financing, and marketing) to Japanese firms operating overseas, including those in Asia, and facilitate trade between third-party countries. By maintaining strong linkages between firms, the trading companies serve as important intermediaries among local suppliers, parent companies, and customers in Japan.

Table 1. Cross-shareholding ratios of major keiretsu

Table 2. Intragroup business relationship ratio of major keiretsu

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