Working Papers

Whither the Keiretsu, Japan’s Business Networks? How Were They Structured? What Did They Do? Why Are They Gone?

The title of this volume and the papers that fill it concern business “groups,” a term suggesting an identifiable collection of actors (here, firms) within a clear-cut boundary. The Japanese keiretsu have been described in similar terms, yet compared to business groups in other countries the postwar keiretsu warrant the “group” label least. The prewar progenitor of the keiretsu, the zaibatsu, however, could fairly be described as groups, and, in their relatively sharp boundaries, hierarchical structure, family control, and close ties to the state were structurally similar to business groups elsewhere in the world.

With the break-up by the U. S. Occupation of the largest member firms, the purging of their executives, and the outlawing of the holding company structure that held them together, the zaibatsu were transformed into quite different business entities, what we and other literature call “network forms” of organization (Podolny and Page, 1998; Miyajima, 1994).

Our purpose in this chapter is to discuss Japan’s business groups, widely known as the keiretsu. It is our view, supported by wide-ranging and consistent evidence, that the Japanese postwar keiretsu system is mostly a thing of the past. In the face of powerful forces of institutional and economic change, the groups have “withered away,” such that they no longer represent a significant feature of the Japanese economic landscape, despite having been so from the 1950’s to the early 2000’s. While our colleagues’ chapters treat business groups in other, mostly emerging economies as in general “alive and well,” our review of the keiretsu is essentially retrospective. The layout of the paper is as follows: We give an overview of the horizontal and vertical keiretsu; how they differ from business groups in other countries; where they came from; how they were structured; their benefits and liabilities for individual firms and the Japanese economy as a whole; why they have largely died out; and whether they—the vertical groups in particular—might be revived.