International Business in Japan

AbstractCapitalist and mostly single family centered, Zaibatsu led to a static system of rules with weak rivalrous forces resulting in what is known as cordial oligopoly. (Niciejewska, 2007, pg 17) Keiretsu networks on the other hand, with its cross stockholdings is more dynamic and provided a more competitive business prudence that continued to drive the Nipp wholenessse economy during the post war halt. The high cohesion that existed between the participating firms in the unsloped keiretsu resulted in intersection and available efficiency that gave Japanese compensaters significant advantages in inter content food markets. The impact of teaching technology and the internet in particular enabled the western countries utilize modular output signal strategies and improved value string management with setting up of undertake output signal centers across the globe. The japans keiretsu firms struggled to fight the American companies that specialized in single core functio ns tether to what is known as the mega competition. Keiretsu networks are unsuitable under modern, glob exclusivelyy competitive, and technologically advanced market conditions. There is definitely a shift towards a more western centric business brass instrument.IntroductionJapanese corporate governance has undergone a lot of change since the Meiji restoration in 1868. It was during this sentence that the industrial revolution exposited across the world. The Zaibatsu originated when the Meiji authorities sold out certain government undertakings to a select few private and influential families to wit Mitsui, Mitsubishi, Yasuda and Sumitomo. These government controlled firms slowly developed into different industries that helped Japan grow economically strong. During this period Japan practiced a closed economic system and strange technology was altogether shunned except in areas concerning domestic development (Thorson & Whitney, 2003). The Zaibatsu which could be loosely tr anslated as monopolies emerged as the corporate structure that underlined the Japanese economy from this time till the end of the Second World War. In particular, the Zaibatsu or the industrial and financial conglomeration of the Japanese empire controlled a large percentage of the national economy during the first few decades of the twentieth century. In the aftermath of the World war 11 and the occupation of Japan by American forces, the Zaibatsu system was disjointed down and this gave rise to what is what is known as the Keiretsu system which is nothing but a group of companies with cross shareholdings and preferential business practices. Though the American government was bent on totally destroying the protectionary policies that the Zaibatsu system represented and proceeded with the dissolution of many Zaibatsu such as Asano, Furukawa, Nakajima, etc they stopped short of boom dissolution owing to hero-worship of the intrusion of Chinas communist practices into Japan. The formation of Keiretsu was an attempt to democratize the Japanese economy and to eliminate the restrictive policies (Thorson & Whitney, 2003). A brief overview of the firm structures in the Keiretsu and flourishing of Japanese economy between 1950-90, and its implications to the current Japanese economy would be discussed in this paper.Zaibatsu (Upto 1945)As briefly mentioned above, the Zaibatsu promoted a strong monopoly with holding companies at the top of the pyramid controlling all the operations between the various enterprises within the pyramid. Holding companies typically enjoyed the majority of the stocks of these businesses and more than 50% of the overall stocks of all the small companies that constitute the Zaibatsu were owned by its members (Thorson & Whitney, 2003). Stock options were never sold out to any third parties not connected with the zaibatsu making it a totally closed economic structure. The Zaibatsu was in short, a government led economic drive with strategi es as well as resources provided for by the government. Japans industrial growth witnessed a rapid upswing under the Zaibatsu system. Buoyed by it success at home, the Japanese government forced the Zaibatsu system in Korea when it colonized the country (Shim & Lee, 2008, pg 49).The Zaibatsu enjoyed complete domination with Mitsui, Sumitomo and Mitsubishi, enjoying as much as 28% of the assets in Japanese companies by 1929. Just when the World War II was about to finish the Zaibatsu had 22.9% of the Japanese company stocks. Thus a handful of Japanese families had control over a vast majority of the Japanese enterprises under the Zaibatsu system. The structure of the Zaibatsu changed very cursorily and soon there was intense diversification. For instance the single Mitsubishi Corporation rapidly diversified its business in to mining, shipping, insurance, occupation, etc in a very short period of time and soon transformed into a holding company that was at the top of the Pyramid cont rolling a range of individual yet committed businesses. The Iwasaki family owned and controlled the entire business network of Mitsubishi (Lincoln & Shimotani, 2009).KeiretsuKeiretsu represents a cluster of enterprises that are linked to each other by way of cross shareholdings and preferential trading practices creating mutual interests in the business progress. Keiretsu are basically divided into two main types namely Vertical keiretsu and plane keiretsu. However there are alike other keiretsu such as the distribution keiretsu that relate to the distribution networks of big manufacturers. For instance the distribution networks of Matsushita, Fuji Photo Film, etc come under the distribution Keiretsu (Shimotani, 1995). Keiretsu emerged as a protective response to the dissolution and distribution of the largely family owned stocks of the Zaibatsu. When hostile companies were taking over the zaibatsu firms the three main Zaibatsu leaders convened and arranged a solution of cross sha reholding and preferential trading policies that enabled them to retain the overall control of the enterprises among themselves. For instance the Mitsui, Sumitomo and Mitsubishi zaibatsu formed this strategic pact of cross shareholdings to maintain their stronghold in the business. This is how the Keiretsu emerged from the Zaibatsu. Soon by the 1960s a few big financial institutions in Japan such as Dai-Ichi Kangyo, Fuji and Sanwa joined with the Mitsubishi, Sumitomo and Mitsui to constitute what was popularly known as the sextette horizontal Keiretsu (Lincoln & Shimotani, 2009). Periodic meetings between the presidents council (shacho-kai) members and executive exchanges and cross share holdings formed the glue between these six Keiretsu. The horizontal Keiretsu is centered around a large commit.On the other hand, the upright Keiretsu are the large manufacturing companies and supply chain companies, the distributors etc. Unlike the flat Keiretsu there is no presidents council in the vertical Keiretsu but the groups of suppliers of a manufacturing firm represent that role (Miwa and Ramsayer, 2006). Similar to the horizontal Keiretsu, the firms in the vertical keiretsu are also linked together by share holdings across firms and preferential business policies. In vertical Keiretsu there is improved knowledge manduction by way of business transfers including exchange of experts and technical staff members across the vertical network. Overall, vertical Keiretsu promotes improved cohesion among the network firms. In fact, the increased colony of main firms on the supplier firms in the vertical Keiretsu even lead to large scale investments by these ancillary Japanese firms in US hobby the footsteps of the Japanese gondola manufacturing firms setting up their FDI in that Country (Banerji & Sambharya ,1996). In technology intensive industries of Japan vertical Keiretsu has greatly improved their international engagement by facilitating rapid knowledge sharin g across the partnership firms. Empirical studies that measured the effects of such knowledge sharing across the firms in the vertical Keiretsu clearly suggest positive productive gains (Branstetter, 2000). One of the important advantages of the vertical keiretsu is the improved coordination between the suppliers and the assemblers. In the keiretsu automotive industries the suppliers receive plenty of oblige in products manufacturing , processing and people management. This is distinctly different from the US approach where the suppliers and the assembly line operate entirely independently. This model of operation facilitates both the parties as it helps to narrow the overall risk for either party. (Lincoln & Shimotani, 2009) Thus the Keiretsu improved knowledge transfer among the networked firms, improved productivity, reduced risk for the firms and gave the Japanese companies clear advantage in the international market.Furthermore, Gerlach (2004), also notes that the Keiretsus were particularly important due to their one-set principle and networking. For instance, synergies were achieved in input and output, especially in the case of manufacturing. Centralized systems and departments were used in conducting basic support operations, which helped all subsidiaries in cost savings (Lincoln & Shimotani, 2009). Also, profit-trapping mechanisms were used in take, by distributing them effectively through subsidiaries (Lincoln & Shimotani, 2009). Cross shareholdings were also particularly important as it helped bar takeovers, encouraged risk taking amongst companies, and had a long term outlook on strategy (Sturgeon, 2006). One of the important examples of the vertical Keiretsu is the Toyota group. In fact, Toyota has a uncomparable distinction of being both a horizontal keiretsu as well as a vertical keiretsu. They key difference is that the massive size of the Toyota organization makes it possible to exist without being controlled by a central bank as is the case with horizontal keiretsu. Toyota with more than $72 billion in one-year revenue has the financial might to stand for itself without the dependence of any major funding source. However, it is associated with the Mitsui group horizontally. Toyota is also widely diversified like a horizontal keiretsu company with its firms representing industries as varied as real estate, computer development, aircraft development, nonlife insurance, etc.The disintegration of the Keiretsu (Why keiretsu failed?)The keiretsu system started to decline slowly by the early nineties and one study by Gerlach (2004) that analyzed the cluster networking pattern of 257 Japanese organizations between 1978 and 1998 found clear evidence indicating this shift away from the Keiretsu. Analysis of cross shareholdings merely confirmed the decline of the keiretsu structure (Lincoln & Shimotani, 2009). By the late nineties many major banks that were previously the core of the Horizontal keiretsu had already sold o ff major portions of their shares to international financial institutions (Ahmadjian and Robinson, 2001). Several Bank mergers further shook the keiretsu structure. Starting with the Mitsui and Taiyo-Kobe Bank merger in 1990 to the 1998 merger of Industrial Bank of Japan, Fuji and Dai-ichi Kangyo bank the largescale mergers of Japanese financial institutions led to consolidation of the related keiretsu firms (Lincoln & Shimotani, 2009).Globalization and technological changes further led to the withering of the Keiretsu. The numbers of board of directors were reduced and many outside(prenominal) personals took up the position. International investors further demanded the conducting off of the stocks in supplier firms and other affiliate firms. Furthermore, the global shift towards modular production system and the production efficiency that it gave rise to, along with a degree of independence between the firms that are involved, kind of eroded the production line advantages that Ja panese firms specialized in mass production under the keiretsu system had enjoyed for a long period. The growth of information technology and the adaptation of computer simulation technologies in production examination and experimentation and swift data exchange between the firms reduced the need for physical communication (which was key in Keiretsu) and drastically improved value chain management.(Sturgeon, 2006) standard production is propelled by ease of systems integration facilitated by information technology. By the 1990s modular production system was already in place in the US electronic sedulousness with its contract manufacturers spread across the globe. While the American firms capitalized on the internet enabled modular production systems and dominated the electronics industry and related computer hardware industry, Japanese electronics industry was still sticking to the components plus products strategy. Cisco systems for instance enjoyed total domination in the network routers market enjoying as much as 80% of the market share while simply outsourcing its device production to contracted producers such as Solectron and Flextronics. Often the production centers are located in low cost regions such as China giving a distinct advantage for the modular production strategy. This stemma between the modular production strategies of the American firms and the in house integrated production system of the Japanese keiretsu firms gave a clear advantage to the American firms. In other words, the Japanese keiretsu firms could not handle the mega competition from the American firms which specialize in single core functions or narrow core competencies. The following go into 1 illustrates the loss suffered by the Japanese keiretsu electronic industries in the early years of the new millennium. (Sturgeon, 2006)Another factor that accompanied global trade is the wavering of the exchange rates and its influence on the profit margin. Furthermore, the expansion into international markets and the associated transportation costs motivated many of Japans manufacturing firms to move their production facilities abroad as a cost effective solution. Though some suppliers too moved and invested in these new countries, in most cases the central firms such as Toyota started building trust and relationships with the local suppliers. Furthermore, changes in Japanese economic reforms including the Tax policies did not tolerate risk sharing measures as they used to forward which clearly undermined one of the key Keiretsu principles.ConclusionThe Large capitalist and mostly single family based zaibatsu companies flourished during the early twentieth century creating industrial monopolies that were closely controlled by the government. Zaibatsu led to what is known as a static system as most of the stocks are retained by the family that controls the business. Furthermore Zaibatsu promoted weak competition leading to what is known as cordial oligopoly.) Keire tsu on the other hand with its cross stockholdings is more dynamic and provided a more competitive business economy that continued to drive the Japanese economy during the post war period. The high cohesion that existed between the participating firms in the vertical keiretsu resulted in production and operational efficiency that gave Japanese manufacturers significant advantages in international markets. However, the Keiretsu principles of preferential business affected foreign companies from entering the Japanese markets.Globalization and increasing pressures from international organizations to sell off stocks in affiliated firms affected the cohesion that previously existed between the participating firms in the keiretsu network. Furthermore, the successful integration and mass production strategies of the keiretsu networks that helped Japanese manufacturing firms flourish were soon affected by the shift in global production strategies. Particularly, the concept of modular produc tion where product design could be isolated from its manufacture and the shift towards outsourcing in the western world created a dent in the Japanese manufacturing sector which was still stuck with the in house production policies. The impact of information technology and the internet in particular enabled the western countries implement modular production strategies and improved value chain management with setting up of contracted production centers across the globe. The japans keiretsu firms struggled to fight the American companies that specialized in single core functions leading to what is known as the mega competition. These fundamental shifts in organizational structure and strategies in the West have made the Keiretsu networks unsuitable under modern globally competitive and technologically advanced market conditions. 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