Saturday, May 19, 2012

Japanese Business Structure - Toyota and the Keiretsu System

Japanese Business Structure - Toyota and the Keiretsu SystemThe Toyota Group (Keiretsu)

A keiretsu is a cluster of interlinked Japanese firms, centered on a bank, which lends money to member companies and holds an equity stake in these companies. By combining forces, these companies are able to reduce costs and risk, better facilitate communication, ensure trust and reliability and provide insulation from outside competition. There are two types of keiretsu, horizontal and vertical. Horizontal, inter-market keiretsu are diversified networks of large companies. These included the three aforementioned descendents of the pre-WWII zaibatsu. Vertical manufacturing and distribution keiretsu are asymmetric networks where small-firm sectors are dominated by large sectors.

The Toyota Group is considered to be the largest of the vertically-integrated keiretsu groups. The United States and most Western countries looked unfavorably upon the keiretsu because they interpreted such a business scheme to be that of an outlawed monopoly or cartel.

The Toyota Group is a terrific example of a highly successful, complex and prominent keiretsu in Japan. It is a member of the Mitsui Group, which is one of its main banks, but functions very independently of the bank. In the past couple of decades, Toyota has been on the top of the list domestically in the United States as well as abroad in terms of sales and profits. The parent firm generates, on average, $72 billion each year in sales with 72,000 employees. That equates to one million dollars in sales per employee, which is roughly six-times that of competitor, General Motors. Toyota has been the best selling car in Japan for over twenty-four years. This alone shows the clout and power of the Japanese keiretsu.

This company is the largest industrial combine in Japan and one of the largest keiretsu in the nation. Another amazing fact is that Toyota is much more than a car manufacturer. In fact, Toyota is a major participant in three telecommunication companies; it is a principle investor in a computer system development firm; and it holds stakes in an insurance company specializing in automotive insurance. Furthermore, Toyota operates four real estate firms, two financial firms and is currently exploring opportunities in the aerospace industry.

Due to the prominence of keiretsu in post-WWII Japan, only those employees that worked in core firm sectors benefited. Those who were forced to work at small firms suffered from low wages, limited career mobility and job instability. Much can be said for the keiretsu system, which, as seen in the case study on the Toyota Group, can yield much power and success.