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Japanese Keiretsu
Term Paper ID:27304
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Examines the management success of the keiretsu & the business it is applied to. Summarizes challenges facing Japanese industry in the near future. Includes 3 pages of tables & figures.... More...
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Paper Abstract:
Examines the management success of the keiretsu & the business it is applied to. Summarizes challenges facing Japanese industry in the near future. Includes 3 pages of tables & figures.
Paper Introduction:
EXECUTIVE SUMMARY
Following the 1994 downturn in the Japanese economy, the Japanese kereitsu are facing hard times. However, those economic analysts and members of the news media who are tempted to write them off as "dinosaurs" are making a mistake. There are many observers who feel that the keiretsu are more viable than ever, and there is much research that confirms this point. This article looks at some of the current research concerning the management success of kereitsu as well as some of the modern industries that this uniquely Japanese system of business organization is being applied to. Rather than dealing exclusively with the auto industry, this report looks at a number of concepts all based on the thinking of the relatively new discipline of Economic Sociology. A summary of challenges for
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This companycurrently controls not only massive means of distribution but also controlsthe end consumer decision, in many instances even pre-empting thepossibility of consumer choice. To answer this question, a wide body of literature concerning thekeiretsu has been assembled; literature which deals with other aspects ofthe structural analysis besides its relationship to the automobileindustry. Pressman, S. Then it puts productsand most associated functions in single locations. It is how to manage knowledge. Journal of Economic Issues 877(8) Rapp, W.P; Patrick, Hugh, T. Casseres-Gomez (1994) writes in the HarvardBusiness Review that this "price-industry-flow" mechanism which is a majorpart of the keiretsu structure is similar to David Hume's "price-specie-flow" mechanism (64). . The firm holds all its meetings in the open, allowing anybody to drop in. In Japanese keiretsu structure, the Business Unit (BU) is planned not onlyas a sole entity to accomplish a task or set of tasks, it is also plannedto become a part of the firm (for example, a subsidiary, branch, orheadquarters) that carries out a set of activities. More of that analysis is solid enough to berepeated in its entirety here (In faint praise..., 1996, 62). But the Japanese remain formidable in such knowledge-dependent skills as the rapid development of new products, the continuous upgrading of existing ones, and the mixing of different sorts of technology, such as photography and office machines. Banerji, K.; Sambharya, R.B. Workers are split into teams and encouraged to discuss problems in the evenings and at weekends. 27:1 89 Bird, A.; Beechler, S. (1991). Law and Policy in InternationalBusiness 3:26 735 Hisao, T. Mitsubishi test-markets its latest camcorders in Tokyo' s Akihabara electronics- retailing district, and withdraws them quickly if consumers fail to bite (In faint praise..., 1996, 54). IMPLICATIONS FOR MANAGEMENT In the Economist article mentioned above, it will be recalled thatmuch attention was paid to the things about business that Japan would stillbe able to teach the world. Software manufacturers,electronics manufacturers, home appliance manufacturers all coordinatetheir activities with competitors and trading partners in order to managenon-financial resource-flows. The Search for international role,recognition, and respect. There are many observers who feel that the keiretsuare more viable than ever, and there is much research that confirms thispoint. Sloan Management Review 3 29-36. One of the main reasons that the keiretsu way of doing business hasmaintained such great staying power is that Japanese business managers, orcompanies, have a major talent for turning adversity into advantage, since,historically speaking, Japan's biggest hardships have inspired its mostimpressive innovations. ID: 8693.Industry Sector Analysis (ISA) U.S.& Foreign Commercial Service and U.S.Department of State. Sharpe, Inc. Dunning, J.H.(1995, Dec. Doc. In faint praise of the blue suit (1996, January 13). But, he argues, theconsequence has been the rapid transplantation abroad of those once-fostered industrial activities. . This is atype of innovation, which is necessary in any kind of problem solving, andoften there is no greater problem than operating or running a part of asuccessful keiretsu. (1985). Under the circumstances, home appliance manufacturers have begun to review their retail policies. It was during a drinking session that the team that developed Canon's desk-top photocopier came up with the revolutionary idea for a disposable drum. Casseres-Gomez, B. INTRODUCTION Much has been written in the news media that Japan's companies arefacing hard times and are being forced to throw away old concepts oforganization in favor of newer, more open business theories. Kao's quarterly R&D conference regularly attracts some 1,8 people (out of a workforce of 7, ).The Japanese approach to managing knowledge contrasts with the current American habit of equating good management with cutting staff to the bone. That samearticle notes: Above all, Japanese firms are still masters at mobilizing the their workers. It is a construct, a way of thinking, and a wayof problem solving that must be dealt with in terms of the greater societyat large.The relatively new study of Economic Sociology has generally focused onthree main ways that economics and sociology can connect: 1) a sociologicalanalysis of economic processes and systems, 2) an analysis of therelationships between the economy and the rest of society, and 3) a studyof how changing institutional and cultural patterns affect the economy. (1995, September) Auto Parts for OEM. Belonging to a keiretsu has influenced the flow of transactions between member firms and created "a thick and complex skein of relations matched in no other industrial country" . Ozawa (1996)suggests that Japan used a neomercantilistic formula to build competitiveexport industries such as autos and electronics. Dunning (1995),in his discussion of the Japanese paradigm of the keiretsu claims that thisis a role model that could, and should, be copied by all nations wishing tobuild profitable economies. In Japanese firms, an apparent surfeit of managers can often be crucial to innovation. This suggests that the Japanese managers are flexible and willing totry any sort of technique to make a product or an idea work. Organization Studies 16: 6 971. (1995, March 22). Vertical keiretsu andinternational market entry: The case of the Japanese automobile ancillaryindustry. Such approaches are expensive in personnel (In faint praise..., 1996, 62). The newkeiretsu management teams and guiding forces have learned sensitivity toculture, to history, and to the changing roles of institutions. ) 488 (75.5)Aisin Seiki 4,741 (-11.3) 1 3 (-31.7)Unicia Jecs 2,223 (34.4) 18 (-1 . (1996). Today's keiretsu could more rationally be called a "dispersedcentralization" model. Possibly that is because they have not been written yet. The Economist,59(2) 338. In America, untilrecently, the BU was created to stand alone, and fight the whims of themarket place to grow in revenues and profits until it was ready to expand.As it expands, then it gains certain advantages through volume purchasingpower, and so on. Harvard University Press. Another term for this strategy would be"platforming." According to Nomoto (1995), this seems to be the directionthat the auto industry and the electronic appliance industries are moving: Price wars initiated by mass merchant discounters are threatening manufacturers and their Keiretsu stores. A businessactivity is conducted by a business unit (BU) and always consists of threeelements: the place where it is located, the product, or products, it isassociated with, and a function (e.g. However, the next step up the ladder, the differences start appearing. (1988). The Japanese automobile industry: Technologyand management at Nissan and Toyota. . (1995, March 1). Gastle, C.M. If more and more major American MNCs were analyzed in thisfashion, then it would be seen that the structural organization andphilosophy for that organization is "keiretsu-inspired." The next step inthat analysis would be the realization that if these profitable MNCs areusing Japanese keiretsu-methods, then the very business philosophy of thevertical and horizontal interlocking companies is perhaps Japan's trulybiggest technological know-how export, since it has often been said thatimitation is the sincerest form of flattery. (Ed.) (1996). Each ofthese BUs is more or less autonomous by having it undertake every function. PURPOSE OF STUDY This study seeks to determine the major reasons why the keiretsu formof management, even after so many changes and so much pressure stillmaintains an incredible competitive advantage in the global economy. However, it is a structure that almost always needs refinement, and theeconomist or theorist who desires to re-invent it must approach it withcaution. Center of Japanese Economy and Business, Columbia BusinessSchool, Columbia University. They divide product-development teams into competing groups to foster alternative solutions to the same problem: while one Canon team was developing its mini-photocopier, another was working on its successor. Kao, a consumer- goods firm, has installed a computer network that gives all employees access to all but the most sensitive personal information. Akeiretsu can go to the other extreme of producing thousands of products inhundreds of different locations. (1995, December 22). Economics andsociology: a review essay. The transfer of managementinnovations from Japan. CONCLUSION In this analysis, a great deal of attention has been paid to thechanging role of the keiretsu in the global marketplace to determine themany ways in which it will maintain a competitive advantage into the nextcentury. Cusumano, M.A. In Japan, the BU, by being conceived as part of a largersupportive family of businesses does not face some of it's Americancounterparts survival threats, and therefore is free to concentrate more onprofit-making activities. It made an attempt to draw conclusions about the importance ofmanagement styles and attitudes from a body of literature that was, for themost part, written by either Western thinkers, or Western-trained thinkersand academicians. The second lesson Japan can still teach the West is more surprising. Inwhat follows, a slightly different organizational approach is taken --examining the economic sociology of the keiretsu in terms of methodology,theory, and policy as it relates to the keiretsu method of doing business. Manufacturing innovation: Lessons from theJapanese auto industry. (1996, September 1). . The company that Bill Gates created has all the traditional benchmarksand attributes of a Japanese keiretsu, yet it is never analyzed in thatframework. Journal of InternationalBusiness Studies. This sounds strange, given that leadership knowledge-intensive industries, from software to entertainment, belongs to America. A second key strategic issue is whatfunctions to disperse to each business unit. Within the framework of economic sociology, the economist realizesthat quite often qualitative surveys of consumer attitudes and descriptivestudies of consumer behavior may help explain phenomena such as decliningsavings rates and may help economists better predict future spending anddemand than relying on traditional quantitative survey methods used by moretraditional economists. This was because there is a small amount of validstudies of the real critical issues of the Japanese keiretsu that areavailable. Policy alternatives for reform of theFree Trade Agreement of the Americas. based on: (1) corporate groups, (2) financial centrality, and (3) industrial interdependence (Banerji and Sambharya, 1996, 89). JAPAN'S 1 LARGEST AUTO PARTS FIRMSJapan's ten largest auto parts firms and basic statistics are as follows: 94 sales 94 profits (pct change from 93) (pct change from 93)Nippon Denso 12,2 1 (-2. Several arrangements help in this. For example, Toshiba is planning to reorganize its 8, Keiretsu stores and Sanyo Denki is planning to increase the number of their stores from 2,5 to 5, (Nomoto, 1995). In all of theseregions, local workers with less and less guidance by Japanese managers areusing Japanese keiretsu methods to produce Toyotas and Nissans for theirdomestic markets. The future evolutionof Japanese-US competition in software: Policy challenges and strategicprospects. However, the majority of the literatureavailable writes about the companies rather than the managers who make thekeiretsu happen. However, those economic analysts andmembers of the news media who are tempted to write them off as "dinosaurs"are making a mistake. product development, purchasing,accounting, human resources, manufacturing, sales promotion, service) thatit was created to accomplish. Journal of International Business Studies26:4 461. The next key strategic issue a keiretsu manager, or management team,actually, comes to grips with is how many business units to have. A second major insight gained by studying the keiretsu in light of itsmanagerial implications for the next century can be gained by utilizingEconomic Sociology are the importance of several attitudes. Journal of International Business Studies. Nomoto, K. Amronk NY M.E. Much has been written about the resource dependenciesthat exist between the manufacturers and suppliers based on their exchangerelationships and how such dependencies have influenced the behavior ofancillary firms. SUPPORT/DOCUMENTATION In studying the literature about the keiretsu's global strategy andorganization, it is important to start with the keiretsu-oriented manager'sbasic thinking which starts with defining a business activity. LITERATURE REVIEW A great body of literature has been written trying to come to gripswith the success of the Japanese style of management. Not only is the pricing and manufacturing structure of the keiretsubeing exported, so too is the philosophy of keiretsu management. Household Electrical Appliances, Doc.ID: 627. Therefore, it isthis shortcoming that this study will deal with. )NOK 1,762 (-6. Finally, the study will attempt to show whatdirections Japanese managers must go in their attempts to re-invent thekeiretsu. Employers routinely rotate personnel, often between vastly different areas, in order to broaden their minds and give them an overall view of the company. Thestudy will include an investigation of the pertinent literature availableon the topic, followed by an attempt to take the most important points ofthat literature to form a basis for further understanding of the importanceof the keiretsu concept. Banerjiand Sambharya (1996), explained the underpinnings of the keiretsu quitewell: A key feature of the industrial structure in Japan has been the inter- corporate group alliances known as "keiretsu." A keiretsu is defined as a group of inter-related organizations that have cross-ownership, joint share-holdings, common trademarks, commodity transactions, and bank loans between themselves. Entitled "In Faint Praise ofthe Blue Suits," it had this to say about the skill of the Japanesemanagers: You might expect cost control to be an enduring Japanese advantage. ) 29 ( . The automobile industry in Japan is just one of the industries thathave been structured on the lines of industrial interdependence keiretsu -popularly known as a vertical keiretsu. HarvardBusiness School Press. A Japanese firm habitually attaches a planning unit, staffed by 1 -15 senior employees, to its R&D division, in order to ensure that research is integrated into the overall business plan, and that innovations have champions among the senior management. There are constant interdependent processes going onwithin a keiretsu that make it such so valuable and important a way to dobusiness around the world. Some of thisnegativism is directed toward the keiretsu, the system of linked companiesthat have made Japan a great economic nation. (1997, Aug, 1). This company is responsible for billionsand billions of dollars in sales, and millions of dollars in annualrevenues. In addition, the internal societal pressures thatJapanese companies have overcome during the last few years--slow economicgrowth, price deflation, over-crowded markets, and copying of innovationsby rivals, are spreading to the rest of the rich world Western world. EXECUTIVE SUMMARY Following the 1994 downturn in the Japanese economy, the Japanesekereitsu are facing hard times. Cusumano, M.A. Japanese companies are also more willing to enlist the consumer in designing products. It is the contention here that since the keiretsu method has beenmodified and adopted by leading businesses around the world (Microsoft,Boeing, Kaiser, Dow to name a few), that it is still a valid form ofbusiness structure, one that will carry the Japanese into the next century. But is there a "keiretsu" way of managinggroups of workers that can also be exported and studied? & Foreign CommercialService and U.S. Hunsberger, W.S. Howalliance networks compete. The company's direction is focused and presented by one man, theleader, who looks over a wide set of activities B manufacturing,telecommunications, media, information dispersal, education, marketing Ball conducted by an incredible interlocking set of business units. Product development performance:Strategy, organization, and management in the world auto industry. Granted, in Japanese culture, losing face is to have toomuch attention brought to any one individual, but there are certainelements of the management style necessary for keiretsu-style businessdealings that do not appear in other types of economies. Prospectsfor growth in Japan in the 21st century, Doc. ) 42 (-35.4)Kayaba Industry 1,655 (-4.8) 35 (2 .6)Press Kogyo 1,615 (-12.1) -2 (2 )Koito Mfg 1,527 (-8.2) 45 (36.4)Topy Industries 1,414 (-11.2) -25 (-56.9)Source: Shikiho Unit: USD millions APPLIANCE AND CONSUMER ELECTRONIC KEIRETSU 1996 PRODUCTIONAccording to JEMA, domestic production totaled USD 27 billion (1 9 yen/USD)in 1996. Based on their relational structure, keiretsu may be divided into three broad categories. (1995, Aug. Mostfirms in the economy have a single unit: one place, one product. Links between businessstrategy and human resource management strategy in U.S.-based Japanesesubsidiaries: An empirical investigation. Pacific Partnership: United States-Japan Trade.Lexington, MA. One answer is that one function, "topmanagement," would not be dispersed and instead would be carried out fromheadquarters (HQ). 4 91 Office of InternationalMacroeconomic Analysis in the Office of the Chief Economist. (1997). The hypothesis for this paper is this: If there is such a thingas a "keiretsu" style of management, it is to be found by analyzing theconcept of Japanese business history in a cross disciplinary methodology,using some of the aspects of the new system of studying economics called"Economic Sociology." This is the system to be used because the success ofthe keiretsu in the world marketplace is more than just a way of sellingmore cars or televisions. In that model, a firm like SONY, or Honda or Nissan(or even Microsoft) puts some functions, such as product design oraccounting, in single locations to serve all BUs. Harvard Business Review, 62 Clark, K.B.; Fujimoto, T. DC Heath 19-5 . The use of this type of business unit is usuallyreferred to as the multi-domestic strategy, and if you are puzzled aboutwhat powerful keiretsu is being analyzed here, it might surprise you torealize that it is not a keiretsu at all, but an American company calledMicrosoft. (1994, July/August) Group versus group. 22). Cohen, (ed). But writing off thesekeiretsu as outdated or outmoded is the wrong approach, since there is agreat deal of global competitive advantage to be gained by doing businesswithin this structure. Information, incentives, and bargaining in theJapanese economy. At this point, there is no differencebetween the Business Unit in America or Japan. In other words, the concept of thekeiretsu has been exported as well as Japanese products. 26 23(24). (1996, March 22). If we were to describe a particular company that is well-known in theworld, most analysts would probably call it a typical Japanese keiretsu.That company has a worldwide network of stores and proprietary dealers thatfocus on one set of products that are heavily regulated. Rather than dealing exclusively with the auto industry, thisreport looks at a number of concepts all based on the thinking of therelatively new discipline of Economic Sociology. Reappraising the eclectic paradigm inan age of alliance capitalism. Industry experts say that the following 1 manufacturers accountfor 7 to 8 percent of Japan's total production of home electricalappliances and consumer electronics: Fujitsu General, Hitachi Seisakusho,Matsushita Denki, Mitsubishi, Denki, NEC, Nihon Victor, Sanyo Denki, Sharp,Sony and Toshiba.Major manufacturers are listed below by product: Air ConditionersMatsushita Denki Sangyo, Toshiba, Mitsubishi Denki, Sanyo Denki, HitachiSeisakusho Coffee MakersMatsushita Denki, Toshiba, Sanyo, Karita, Philips, Merita,Hitachi Seisakusho, Mitsubishi Denki Electric BlanketsMatsushita Denki, Toshiba, Sanyo, Hitachi Seisakusho, Mitsubishi Denki Electric ShaversMatsushita Denko, Braun, Sanyo, Hitachi Seisakusho, Seiko,Philips, Toshiba FansMatsushita Denki, Toshiba, Sanyo, Mitsubishi Denki, HitachiSeisakusho, Sharp Hair DryersMatsushita Denko, Tescom Denki, Koizumi Seiki, Toshiba Cooking PlatesMatsushita Denki, Tiger, Zojirushi Mahobin, Hitachi, Fujimaru IronsMatsushita Denki, Toshiba, Sanyo, Hitachi Seisakusho, Mitsubishi Denki Juicers/MixersMatsushita Denki, Toshiba, Hitachi Seisakusho, Mitsubishi Denki, Sanyo,Sharp Microwave OvensMatsushita Denki Sangyo, Sharp, Toshiba, Mitsubishi Denki,Hitachi Seisakusho RefrigeratorsMatsushita Denki Sangyo, Sanyo Denki, Sharp, Hitachi Seisakusho, Toshiba ToastersMatsushita Denki, Toshiba, Hitachi Seisakusho, Sharp, Mitsubishi, Sanyo Vacuum CleanersToshiba, Sanyo, Hitachi, Mitsubishi Denki, Sharp Washing MachinesMatsushita Denki Sangyo, Hitachi Seisakusho, Toshiba, Sanyo, Sharp(Note: The order of companies given above does not necessarily reflectsales ranking.Source: Shijo Senyuritsu '97/Market Shareby Nihon Keizai Shinbunsha and data compiled by Yano Economic Research) References Aoki, M. Meanwhile each BU is atthe very least a sales unit. . & Montecinos, V. Thatis why the study of the Japanese keiretsu's inherent global advantage as away of doing business is definitely a ripe field for further businessanalysis research. Industry Sector Analysis (ISA 978 1) U.S. Using economic sociology, this analysis willexplore several leading multinational companies (MNCS) to see if theirstructures and ways of doing business are patterned after, or inspired bykeiretsu. This raises the question of what point having a single owner of suchindependent units would serve. Lillirank, P. 31). This article looks at some of the current research concerning themanagement success of kereitsu as well as some of the modern industriesthat this uniquely Japanese system of business organization is beingapplied to. . )Toyota Gosei 2, 93 (-12.5) 36 (-48.4)Calsonic 1,818 (-11. The truth of the matter is that only a handful of westernmanufacturing firms can truly claim to match the best Japanese firms inmanufacturing. It can be argued that the keiretsu that exist today are not thekeiretsu that existed when much of the writing about the Japanesephilosophy of doing business was being spread throughout the Western world. Meanwhile, Japanese firms have proved uniquely successfulat transferring their own expertise and know-how across internationalborders from northeast England to the American South. A summary of challengesfor the future of Japan's growth concludes the report. Department of State Okubo, S.; Brown, W.B.; Yu, F.W.; Borghese, K.J. Cambridge University Press. (1988). PRESENTATION AND DISCUSSION OF ARGUMENT A 1996 article in The Economist made an attempt to understand some ofthe keiretsu management secrets and methods.
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