'Keiretsu' is a familiar term to many businesses that operate globally.  As an user of products such as Sony and National  you may appreciate technology, quality and functions.  However, if you wish to successfully enter the market in that nation, you better understand the term and its implications.  The nation I am referring to is Japan, a tiny giant of Asia, that has made remarkable strides from ruins to riches.  A key ingredient of the Japanese success is her unique business system called keiretsu.  The system has played crucial role in nurturing of Japanese companies to become global giants.  Hence, keiretsu has attracted attention of global companies, governments and business researchers.  A glimpse of the system and its implications are followed by another approach—Strategic Networks.

         Keiretsu, often called the foundation of Japanese industry, is the successor of pre-world war II, zaibatsu system.  The Zaibatsues were largely based on family ownership of major components of industry, and were often headed by banks or trading companies.  Expanded industrial groups that emerged from zaibatsu are now called keiretsu.  Keiretsu, has several important consequences for the way Japanese companies do business and how the Japanese economy functions.  That's why, other developed countries have thought of special national policies to cope with challenges of keiretsu and to resurrect their competitiveness.

         Some key implications of keiretsu system of loyalty and cross-ownership within large competing teams are following:
• Short product development times
• Low degree of vertical integration for flexibility
• Protection for Japanese-owned firms that does not insulate inefficiency
• Market stability and nurturing environment for small and medium-sized enterprises
• Low cost of capital and product development

         The list is a generalization and should be considered just indicative.  Nevertheless, the system has created unprecedental challenges even for some high-tech industries in developed world.  As a western researcher writes, "Without political protection, the Japanese would have completely swamped the western markets in automobiles, electronics, etc."  Some companies in the west have recognized merits of keiretsu systems and are reorganizing their operations.  One emerging system is called 'Strategic Networks'.

         Strategic network and keiretsu have many common characteristics: a flagship firm, policy of specialization within the network, and long-term trust-based relationships.  Understanding such emerging business systems and their implications for competitiveness is an area of research at the Department of Management Studies, which also houses "Dalmia Research Program on Management Practices in Asia."

Email: momaya@dms.iitd.ernet.in
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