Keiretsu Essay

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The economic miracle of postwar Japan can basically be attributed to its keiretsu system. A traditional Japanese economic and social network system, keiretsu played a crucial role in creating a monopolistic market, which excludes outsiders. However, recent years have seen the automobile sector in Japan experience a dramatic change in the scale and scope of customer-supplier partnerships, largely due to the rapid development of technology, standardization of parts, globalization and Japan’s long-term economic slump in the 1990s. Keiretsu ties now vary across the automobile industry. While Toyota tightens the partial equity share ownership of many of its keiretsu group companies, Carlos Ghosn, Nissan’s CEO, is a striking example of a ‘keiretsu breaker.’ He implemented the so-called ‘Nissan Revival Plan,’ restructuring a financially distressed Nissan by dissolving many of the keiretsu partnerships with trusted group suppliers. Now, Japanese car manufacturers and suppliers are under increasing pressure to adopt cost-effective procurement strategies in the changing market environment. Economically rational? Keiretsu is understood as the structuring of a complex web of assembler-supplier networks based on partial equity ownership and trust, mutual respect, and common goals over time. In contrast, the structural organization of American-oriented buyer-seller relationships is characterized by strict cost orientation, search for short-term profits and arm’s length market transactions. For the automobile industry of Japan, most discussions on the advantages and disadvantages of the keiretsu form of industrial organization are controversial. Moreover, there is not yet an ultimate answer of as to how keiretsu membership affects corporate performance in the automobile industry. One of the greatest benefits of the automotive keiretsu organization is the protection

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