Japanâ€™s Keiretsu as a Strategic Relationship with Suppliers 2005

Japan’s Keiretsu as a StrategicRelationship with Suppliers

The value chain of the new Keiretsu in evolution

Supply Management Research Group, Japan

CAPS: Center for Strategic Supply Researc h

2 0 0 5

Japan’s Keiretsu as a Strategic Relationship with SuppliersThe value chain of the new Keiretsu in evolution

Supply Management Research Group, Japan

Copyright © 2005 by CAPS. All rights reserved. Contents may not be reproduced in whole or in part without the express permission of CAPS.

ISBN 0945968-64-7

2 J a p a n ’s Keiretsu as a Strategic Relationship with Suppliers

Table of Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5What Is a Keiretsu? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Keiretsu Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6The Current Company Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Keiretsu: Its History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Keiretsu Characteristics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Keiretsu Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

The Japan-U.S. Structural Impediments Initiative . . . . . . . . . . . . . . . . . . . . . . . . . 12Problems and Subsequent Changes in Keiretsu Relationships. . . . . . . . . . . . . . . 12

Case Analysis of Two Major Japanese Industrial Fields . . . . . . . . . . . . . . . . . . . . . . 14Comparisons between the Electrical Machinery and the Automotive Industries . 14Electrical Machinery Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15The Automotive Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Future Orientation: The New Keiretsu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Survey Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26New Keiretsu Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Management Issues in the New Keiretsu. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31CAPS: Center for Strategic Supply Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

3CAPS: Center for Strategic Supply Researc h

Figure 1: Types of Keiretsu . . . . . . . . . . . . . . 7

Figure 2: Keiretsu Groups . . . . . . . . . . . . . . . 8

Figure 3: Movement of Keiretsu from 1940 to Present . . . . . . . . . . . . . . . . . . . . 8

Figure 4: Comparisons of Each Industry . . . . 15

Figure 5: Six Corporate Electronics Groups. . 16

Figure 6: Evolution of Strategic Focus in theElectronics Keiretsu . . . . . . . . . . . . 18

Figure 7: Supply Networking . . . . . . . . . . . . 18

Figure 8: The Members of the Supply-Side Network . . . . . . . . . . . . . . . . . . . . . 19

Figure 9: Future Concepts of Transactions in the Electronics Industry . . . . . . . 21

Figure 10: Question 1: Selection Criteria. . . . . 27

Figure 11: Question 2: Current Keiretsu Relationships . . . . . . . . . . . . . . . . . 27

Figure 12: Question 3: Changing Relationships . . . . . . . . . . . . . . . . . 28

Figure 13: Direction of New Keiretsu Strategies . . . . . . . . . . . . . . . . . . . . 28

Figure 14: Management Issues in the New Keiretsu . . . . . . . . . . . . . . . . . 29

F i g u re s


The words “Keiretsu” or “Keiretsu transaction” — socommon to the Japanese industrial vernacular — arenow becoming well-known around the globe. In U.S. orEuropean technical books, they often are used withoutaccompanying translation, like other well-knownJapanese terms such as Kanban (JIT system), Hoshin(policy), Kaisen (improvement), and Muda (waste).Although Keiretsu is now recognized globally, it maynot be viewed as positively among supply chainprofessionals as it is in Japan. Many corporate managersmay not recognize its unique qualities, and may view itas just another alliance or collaboration for competitiveadvantage.

The primary focus of this study is to explain anddevelop the Keiretsu relationship; its historical evolution,and its importance to the supply chain. This study seeksto explain in depth the Keiretsu collaboration and howit affects different aspects of supply chain management.

Companies already create business-to-business alliancesto develop and sustain competitiveness as circumstanceschange. The business-to-business collaboration, orstrategic alliance, is indispensable, as no company canperform all its functions without partner support. Thebusiness-to-business cooperative relationship may haveseveral objectives, depending on circumstances. Achanged objective automatically influences therelationship; often, management must sever, improve, orchange a previous relationship and then start theprocess of establishing a new one.

This report intends to forecast future business-to-business collaborative relationships. To do so, it willexamine the changing Keiretsu system within theframework of two of Japan’s major industries, theautomotive and the electronics sectors.

I n t ro d u c t i o n


K e i retsu Defined

Some researchers have avoided using the word Keiretsubecause its meaning can be ambiguous. One definitioncommon to many researchers includes the words “fixedrelationship” or “close cooperation” between entities, insome cases between a large company and conglomera-tion of other companies. In Japan, there is somehistorical context to the Keiretsu relationship thatfurther clarifies the concept: Keiretsu relationshipsconsist of repetitive transactions that occur long-term,as opposed to one-off or single deals. A second, majorcharacteristic is the asymmetrical nature of therelationship, in that one company or institution uses itsposition to govern, or rule, the relationship.

The word Keiretsu literally means “series” or “relatedsequence”; it implies that things are lined upsystematically or by rank. A Keiretsu relationship isbased on a close and stable business collaborationbetween affiliated entities, rather than on family orother social ties. One type of Keiretsu has a pyramidstructure consisting of a large company that heads agroup of related companies.

In the financial Keiretsu, various manufacturers grouptogether by cross-shareholding, -financing, and -humannetworking with a dominant financial institution,predominantly a bank, at the center.

In the manufacturing Keiretsu, manufacturers supplycomponents to companies on a continual and stablebasis. Dr. Tadao Kiyonare, president of Hosei Universityin Tokyo, defines the Keiretsu transaction as “relativelyindependent parts manufacturers (who) have a long andstable relationship with a particular assembly maker toform a monopolistic market.”

Different forms of the Keiretsu relationship are the“horizontal” and the “vertical,” the latter dominated bymanufacturing and distribution industries. These twoKeiretsu dominate the Japanese business landscape. TheJapan-U.S. Structural Impediments Initiative, which willbe discussed later in this report, mentions the negativeinfluence the Keiretsu can have, implying that itconstitutes a type of conspiracy between companies.The Keiretsu, the report says, can negatively impacteconomic activity between the two countries.

It is difficult to narrowly define the term Keiretsu, as it isused to describe a wide variety of business-to-businessrelationships in Japanese industrial society. The term“long, continual business relationship” may be a lessambiguous and more accurate term for this report. Thislatter expression is very much a part of Japaneseindustry.

Various economists have developed theoreticalframeworks for the Keiretsu relationship. J.R.Commons, the institutional economist, defines acorporate organization as one that is constantly movingahead. If an organization forms an ongoing relationshipwith another business, he says, there needs to be someexpectation that dealings between the two will be fairlyand properly performed. In other words, there must be“trust” or “confidence” between long-term partners. Thistrust should be seen as economic property and is animportant guarantee that the mutual transaction will beperformed uninterrupted.

The types of Keiretsu shown in Figure 1 include:“Zaibatsu (clique) Keiretsu,” “Financial Keiretsu,”“Manufacturing Keiretsu,” and “Marketing Keiretsu.”

The Zaibatsu includes companies that predate WorldWar II: Mitsubishi, Mitsui, and Sumitomo groups.

What Is a Keire t s u ?


Another “big three” were formed shortly after the war:Fuyo (Fuji bank), Daiichi-Kangin, and Sanwa.

These six large companies share the followingcharacteristics:

1) Cross-shareholding2) President’s regular meetings (with an exchange of

opinions)3) Loans to affiliates by its group bank4) Transactions by its own general trading firm

(SOGO SHOSHA)5) A common investment company established by

group member companies6) An overall industrial system that centers on a

heavy-chemical industry

The financial Keiretsu is based on financial transactionsamong member companies, centered around a corefinancial institution (a main bank). The manufacturingKeiretsu is based on transactions between assemblymakers and parts transformers. The marketing Keiretsurepresents the fixed and exclusive transactions betweenmanufacturers and distributors.

The Current Company Gro u p

Keiretsu relationships in Japan changed significantlytwo times in recent history: during the 1980s, whenindustries established subsidiary companies, and in the1990s, when many groups were reorganized internally.

The 1980s saw the emergence of consolidatedaccounting and the management strategy of dividingbusinesses. Subsidiary companies played an importantrole as independent side businesses that still reflectedthe influence of the parent company. The strategicbusiness unit (SBU) would determine how thesesubsidiaries would be organized.

The 1990s ushered in many changes to the Keiretsusystem. Almost all of the subsidiaries were reorganizedor restructured due to the collapse of the bubbleeconomy and a recession. These economic factorsforced companies to downsize or shut down non-performing subsidiaries. In some cases, this needed tobe done, but, at times, the actions taken were reactive,leaving management and staffs too lean. Others usedthis opportunity to reintegrate the whole group thatearlier had been decentralized.

Just as after World War II, when the occupyingAmerican administration reorganized the pre-warsystem of Zaibatsu, the structure of the big six companygroups continued to evolve with changingcircumstances. These changes are creating many newbusiness relationships.

In Japan, there are two levels to the company group: theCorporate Complexes and the Corporate Groups, eachwith multilayered relationships. Needless to say, therealso are many independent “company groups” that donot belong to the big six group of companies. Thesenew groups wield as much influence in Japan as do thebig six.


Figure 1Types of Keiretsu

1. Zaibatsu (Clique) type:Traditional cliques and new konzern

2. Financial type:Banks’ affiliates transaction

3. Marketing type:Exclusive distribution channel

4. Manufacturing type:Parts supply network

Some researchers have divided the new, independentcompany groups into two categories: horizontal groupsand vertical affiliates. However, each group hasestablished many layers of business relationships. Forexample, Sumitomo Chemical Company is an importantmember of “Hakusui-kai” (Sumitomo group club), but italso heads the Sumitomo Chemical Group, which iscomprised of 172 affiliates.

K e i retsu: Its History

In this chapter, we will review the history of Keiretsusince the term’s emergence. Figure 3 summarizes thesocial and economic circumstances affecting Keiretsurelationships over the past 60 years.

Four significant factors emerge from these six eras:

1) The term Keiretsu is first used.In the middle of 1943, nearing the end of World War II,the term Keiretsu began to appear in the Japanese

media. The Japanese military needed its country’sindustries to rapidly produce aircraft machinery andweapons. New company groups (Keiretsu) formed torealize these critical wartime needs. In the spring of1944, articles began to appear in economic papers thatmentioned Keiretsu subcontracting businesses.Industrial reorganization was an important step in theincreased production of machinery and steel products.However, governmental control over fixed Keiretsu didnot work. Instead, private parent companies began toestablish their own Keiretsu relationships. Still, it can besaid that the formation of Keiretsu was an importantgovernmental war policy at the time.

2) Keiretsu relationships are recognized for theirstrength.During the recession following the Korean War, Keiretsurelationships were recognized as exceptionally strong. In1952, critics alleged that monopolies were rulingJapanese industry under the guise of the businessKeiretsu. This issue took hold in the Japanese media.As a result, lawmakers revised for the first time thecountry’s anti-monopoly law. Other factors, such as


Figure 2Keiretsu Groups

The Six Groups(Traditional Financial Clique)

Corporate ComplexesHorizontal Group1) Mitsui2) Mitsubishi3) Sumitomo4) Sanwa5) Fuyo6) Daiichi

New Groups(Sub-Contracting)

Corporate GroupsVertical Group1) Nippon Steel2) Matsushita3) Toyota4) Toshiba

Figure 3Movement of Keiretsu from 1940 to Present

Year Event

1940-1945 Zaibatsu reorganized by government policy following World War II.

1945-1950 GHQ dissolves the Zaibatsu.

1950-1970 Zaibatsu are restored.

1970-1975 Reintegration against yen appreciation and oil crisis.

1989-1990 Japan-U.S. Structural Impediments Initiative.

1999-2002 Discontinuation of Keiretsu (Nissan is a typical example) and re-creation of new trade relationship.

capital structure, mergers, and technical advancements,may have led to a shift toward Zaibatsu.

3) Keiretsu relationships are said to conflict withinternational business practices.The Japan-U.S. Structural Impediments Initiativeprompted discussion as to whether the Keiretsurelationships are good for international business, andwhether they hinder competition. Details of theinitiative will not be discussed in this report. We willpoint out that the United States has been stronglystating its position on the initiative since 1989. Prior tothat, the U.S. Congress addressed these issues in theKibones Report, published in 1981 by its commercecommittee. The Kibones Report sharply criticized theJapanese company groups, as did a United States traderelations report in 1983. Criticism was not confined tothe United States, and Europeans also criticized theJapanese company groups. Keiretsu relationships wereviewed as “evil,” but no concrete actions were takenagainst them.

The Keiretsu’s infamy continues. Other than economists,who argue that Keiretsu relationships make economicsense and create efficiencies, the international businesscommunity does not view them positively. During thistime, major Japanese automobile companies movedtheir production facilities offshore and establishedsupply networks for them. This triggered accusationsthat the Japanese were exporting the practice ofKeiretsu.

4) Keiretsu is evaluated.As global competition grew and the Japanese economyslowed to the point of stagnation, Japanese industrybegan evaluating the different forms of Keiretsu toassess which were most competitive. Although manyKeiretsu appear similar, they actually differ in importantways. Keiretsu that didn’t work were weeded out, andthose that did were studied further.

It was not easy to abolish Keiretsu relationships.Japanese industries had to rely on the support andinfluence of the international business community.

After 1990, when the bubble economy burst and theyen appreciated, Japanese automakers agreed todecrease their production volume. Then, automobilecompanies that had lost global competitiveness due toinflexible procurement processes were forced to acceptforeign capital. Nissan’s president Carlos Ghosn, afterexamining the inflexible procurement practices ofNissan’s Keiretsu, reformed the company. He saw it wasnecessary to buy inexpensive components from outsidethe Keiretsu in order to lower costs. Economically, thatmade sense. However, he faced an important barrier:

the capital investment Nissan had made with itsKeiretsu partners. To rapidly proceed with reform, thosebonds had to be severed. The Nissan Revival Plan,published in 1999, outlined the company’s new plans.At that time, Nissan held stock in 1,394 companies. Ofthose, only four were considered indispensable, andalmost all of them objected to the withdrawal of capital.Foreign-capital companies to whom Nissan sold itsstock were almost all globally competitive and hadglobal supply capabilities. Through these companies,Nissan’s former Keiretsu partners gained access tooffshore production sites, while the foreign-capitalcompanies gained access to Japanese markets. Nissanexpanded its trade outside the Keiretsu, realizing 20percent cost reductions one year sooner than planned.Its sales-profit ratio improved by 10.8 percent by March2003.

The above story illustrates how changes in acompetitive corporate environment leads to diversity inthe Keiretsu system. In the past, changing circumstances— due to wars, economic depression, matured markets,or globalization — impacted, often adversely, Keiretsurelationships. Companies were forced to end or restrictsome of their Keiretsu subordinates if that relationshipdid not meet the demands of increased competition. Onthe other hand, some companies worked within theconfines of their Keiretsu relationships to increase theircompetitive edge. To fully understand the Keiretsusystem, one must examine its strengths and positivecontributions to industry. One must resist the impulseto focus on the Keiretsu’s flaws. Otherwise, it ispointless to examine the system at all.

K e i retsu Characteristics

We can now summarize the features of the Keiretsusystem in light of these historical changes. We will focuson two features that were criticized in the Japan-U.S.Structural Impediments Initiative.

The first criticism was that Keiretsus feature long-termtrade relationships that prevent third parties fromparticipating freely in the market. Japan’s largestindustries have established long-term relationships witha limited number of companies. Such closed-tradecustom stifles free-trade relationships that depend oncompetition.

The second feature is that companies within a Keiretsuhold each other’s stock to prevent other companies fromacquiring shares. In Japan, this policy has createdstability in the stock market. This reliance on a stablestock environment seems to contradict the basicprinciples of the free trade of capital.


We will elaborate on these and other features of theKeiretsu system.

1) Long-term, continuous tradeIn an intermediate report of the Japan-U.S. StructuralImpediments Initiative, it was said that long-term tradeagreements create excellent economic efficiencies andmake sense among companies that specialize in aparticular product. That is, to start a business requirescertain startup costs. These expenses can be largedepending on conditions that vary among industries.The following are conditions that may impact a startupbusiness’ relationship with a new supplier:

• How can we maintain quality in the goods wetrade?

• Does the supplier operate according to safeguidelines?

• How can we reduce costs while maintainingquality?

• Can we maintain a reliable supply in the event ofan unforeseen event?

• How quickly can the supplier adapt to newtechnology?

Risk is inevitable in starting a new company. In light ofthis, long-term trade arrangements should be evaluatedfor their economic efficiencies, not just in Japan, butglobally.

2) Fixed, non-symmetrical trade between companiesBusiness continuity is the foundation of long-term,cyclical trade between companies. Fixed trade demandssuch continuous, cyclical transactions. And, dependingon the differences in management resources, onecompany typically dictates terms to the other. This isanother feature of fixed trade. In practical terms, thisimbalance of power manifests itself in negotiatingstrength.

3) “Dispatching” executives into the KeiretsuThe asymmetrical business relationships mentionedabove lead us to another feature of the Keiretsu that iscriticized by the United States and Europe: dispatchingexecutives into the Keiretsu. In Japan, it is a commonpractice, once a parent company’s executive or chiefemployee retires, to dispatch that person to anothercompany in the Keiretsu. This custom is unfamiliar tobusiness people in the United States and Europe.

In Japan, Article 13 of the Anti-Monopoly Law prohibitsan executive from serving concurrently in twocompanies when it limits competition in the businessfield. In the United States and Europe, it is common foran individual to resign from one company and move toanother. It is different in Japan.

After resigning from a company, an executive in Japan isdispatched to a company in the Keiretsu. This requiresthe executive to do business with the former parentcompany, adhering to its rules and regulations. Withonly a small percentage of stock holdings, a parentcompany can dispatch its executives throughout theKeiretsu, thereby controlling its management. Thispractice is an inexpensive way to maintain managementcontrol and is a defining characteristic of the JapaneseKeiretsu.

4) Holding each other’s stockCompanies in a Keiretsu hold a high ratio of eachother’s stock. This cross-holding of stock is animportant feature of the Japanese stock market.Typically, managers in a Keiretsu respect a company’smanagement and do not interfere in its decisions. In acrisis, however, executives from a dominant companymay issue orders to a smaller company in the Keiretsu.

This practice is logical within the framework ofcorrelative stockholding, but was deemed an invasion ofstockholders’ rights in the Japan-U.S. StructuralImpediments Initiative. Those include the accumulatedright to vote and the right to prevent an externalexecutive from reading a company’s ledger. However,holding each other’s stock is a convenient way toprevent hostile takeovers, a protection that Japanesecompanies consider indispensable. We note that such apractice would not be accepted in the United States orEurope.

5) Supplementing and replacing through business-sharingThis practice is common in the Japanese automotiveindustry. The following is a typical case: a Japaneseparent company establishes a unique Keiretsurelationship with a component assembly subcontractor.The parent company, with the cooperation of thesubcontractor, establishes guidance systems governingproduction technology and quality control methodology.The extent to which this occurs depends on the long-term business relationship. That is to say, theautomobile company carefully and closely guides itsKeiretsu component companies. This interdependencyfurther promotes the Keiretsu model.

In the 1950s and 1960s, Toyota and Nissan closelyguided its component manufacturers through theprocess of establishing mass-production technology.This enabled them to maintain the same pace andmicro-control over all their Keiretsu companies.However, today it is common practice for an automobilecompany to simply specify what it needs in componentparts. The Keiretsu partner produces those partsaccording to its own special technology or development

1 0 J a p a n ’s Keiretsu as a Strategic Relationship with Suppliers

processes. In a sense, the component company performsthe supplementing and replacing of technologynecessary to meet the automobile manufacturer’s needs.Those component companies are called “suppliersrequired for its own design.”

One feature of this methodology is that results varydepending on the user’s intentions. Various problemsarise from this methodology: critics of this systemexpress concern that it hinders fair trade and promotesmarket inefficiencies. There is a consensus in Japan thatmarket demands alone should not dictate howbusinesses operate, but that market demands coupledwith these organizational mechanisms work better forsociety. There in no consensus, however, as to howmuch control should be left to market forces and howmuch left to organizational controls. This ambiguitygives rise to criticism of the Keiretsu system.

K e i retsu Objectives

There are three objectives to the Keiretsu system:

1) OutsourcingThe parent company entrusts low-value-added productsto the subcontractor. Outsourcing reducesmanufacturing costs for sheet metal processing, metalpainting, mold forming, the assembling and labeling ofmaterials, and more. In the automotive industry, this iscalled “supplier subject to drawings method,” meaningthat it is a way to entrust a car company’s drawings to amanufacturer. The car company retains responsibilityfor its core competencies and entrusts subcontractorswith common parts and general materials.

Shortcomings to this system have become moreapparent recently and have not always been offset byoutsourcing’s ability to keep costs down. Affiliatedcompanies that do not have competent research anddevelopment functions, varied manufacturingtechnologies, adequate machinery, or marketing abilitymay not be able to develop a customer base.

2) Building relationships of mutual trustThis ideal has a long history in Japan, and specialistsrecognize its economic benefits. Long relationships builton mutual trust allow businesses to rely on fixed, or“sunk,” costs. The cost of ending a long-termrelationship can be enormous. In a relationship built onmutual trust, a parts manufacturer closely follows theneeds of the automobile company and develops newparts accordingly. Having invested in specific equipmentor “dies” required by the customer further embeds therelationship.

3) Risk-sharingCompanies in a Keiretsu share investment risks, even ifequipment was originally purchased or on loan from theparent company so an affiliate could follow designspecifications. Negotiations allow for flexibility in cost-sharing and for the manufacturer to recoup itsinvestment. Both companies engage in a process of giveand take. Often the parent company is hesitant tocommit to an investment and it takes time forexecutives to sanction a purchase. Other times, anaffiliate company may quickly invest in the necessaryequipment.

Management must base its decision — particularly iffaced with increased demand and personnel costs — onhow much it wants to risk in capital expenditures.

1 1CAPS: Center for Strategic Supply Researc h

P roblems and Subsequent Changes in Keire t s uR e l a t i o n s h i p s

In the Japan-U.S. Structural Impediments Initiative,begun in 1989, the Americans detailed six practices asbarriers to trade:

1) The price mechanism2) The distribution system3) The savings and investment balance4) The land policy5) Keiretsu’s parent company-affiliate relationships6) The exclusivity of Keiretsu relationships

This paper will address the parent company-affiliaterelationship in a Keiretsu environment.

The Americans said that the horizontal financialKeiretsu and the vertical Keiretsu groupings preventedthem from entering the Japanese markets. Japanesecompanies give priority treatment to the companies intheir Keiretsu, preventing outside companies fromconducting business on a level playing field — which isthe foundation of a free market. Keiretsu relationshipsalso prevent outside companies from making corporateacquisitions — which should be a valid way to enterthe Japanese market — particularly through the practiceof cross-shareholding within the corporate group. Thecorporate groups — which consist of manufacturing,finance, and service companies — share each other’sstock.

The Americans and the Japanese discussed theseproblems at meetings in Tokyo and Washington, D.C.,and issued a mid-term report on April 6, 1990.

The Japanese produced a plan to improve traderelations.

While there are rational economic reasons for theKeiretsu system, the Japanese recognized that itobstructs direct investment in their industries andhinders competition. The Japanese government agreedto make Keiretsu relationships more open andtransparent. The government also agreed to increasecompetition within the framework of the Keiretsusystem, strictly enforcing existing anti-trust laws, andintroducing more foreign companies into the Japanesemarket.

However, Japanese and American representatives failedto agree on the fundamental questions concerning theKeiretsu system and ultimately, nothing was done tobring the two sides together. The issue arose every timeJapanese trade representatives met with their counter-parts in the United States or Europe. Because thecontent of Japanese-U.S. trade discussions are not madepublic, it is unclear what the Japanese government isdoing to allay criticism of the Keiretsu system.

In the mid-term report, the government appearedambivalent about changing the system; it noted itseconomic benefits, but also recognized that it impedesfair trade. Therefore, it is important that this reportrecognize the economic rationale for and the efficienciesof the Keiretsu system.

Many economists have recognized the benefits of theKeiretsu system. In the mid 1990s, scholars publishedarticles in several foreign countries. Economist O.E.Williamson wrote: “The Keiretsu transaction seems tobe positioned between market dealings and affiliatedealings (in-house dealings).” These are long-termrelationships, based not on market-oriented principlesbut on trust.

It is difficult to objectively examine or measurerelationships based on trust, as opposed to market

The Japan-U.S. Stru c t u r a lImpediments Initiative


forces. One must examine each company’s policies to doso. One arrangement that works well is the partssupplier and distributor within a Keiretsu. For example,a company will order the same part from more than onemanufacturer, spurring competition between them. Inanother case, a company will buy from a manufactureroutside of the Keiretsu if that manufacturer possessesexcellent technology. It will then allow themanufacturer, and others after it, to join the Keiretsu.Conversely, suppliers whose efforts are inadequate aredropped from the supply base. Omitting inadequatesuppliers, even if they are affiliated companies, is adynamic way of managing competition.

R. Door, the famous Japanologist, has long showcasedthe efficiencies of the Keiretsu system. He wrote aboutthe above cases in “Flexible Rigidities” (StanfordUniversity, 1986), but his most systematic expositionwas “Goodwill and the Spirit of Market Capitalism,”given in 1983 at the London School of Economics. Inthe latter paper, he discussed what he called relationalcontracting, or “the dealings concerning relationships ofobligation.” This principle explains how Japanesecompanies value trust relationships, as well as marketprinciples. As a result, they form long-term businessrelationships that also manage to foster competition.

Author E. Hadley also described the system in hiswritings:

“The general way of speaking of ‘Company grouping’in present-day Japanese words is Keiretsu. Whenusing this word without various modifiers, generally,it means a succession group in a plutocratic(Zaibatsu) company or ‘headless combine.’ Actually,it is Mitsubishi Keiretsu, Mitsui Keiretsu, SumitomoKeiretsu and it means the multilateral group of thebig businesses, which are connecting with thisKeiretsu mutually by the possession, the trust, themanagement, and the marketing. Therefore, the basisis a multitude of bonds different from other groups,which are mainly based on the line.”

The Japanese Keiretsu cannot be compared to thoseAmerican businesses that conduct unfair, closedtransactions and that manipulate stock holdings. The“stable stockholder policy” described previously ischaracteristic of the Japanese Keiretsu, but was enactedon a large scale in the 1970s to prevent takeovers byforeign businesses entering the market with foreigncapital.

As this phenomenon increased, it caused increasedfriction between the Japanese and international traderepresentatives, who decried it as an unfair tradepractice. A Japanese company can implement a takeover

bid (TOB) in the United States, but an Americancompany cannot do so in Japan.

Another point that must be discussed is the historicaldifferences in industrial development in the Japaneseand American automobile industries. A typicaldifference follows: In the United States, many organizedand powerful equipment manufacturers suppliedautomotive assemblers with parts. In short, equipmentmakers nurtured the car makers. In Japan, to thecontrary, a localized automotive industry — especiallythe big three manufacturers Nissan, Toyota, and Isuzu— made its own component parts, at least in the earlystages, and then nurtured auto parts manufacturers. Forthis reason, Japanese car manufacturers established thesubcontracting relationships of the Keiretsu.

The Japan-U.S. Structural Impediments Initiativecontinues to address these points. However, it seems asif misunderstandings continue, as neither side has afirm grip on the historical relevance of its opponent’ssystem. The United States’ assertion that the Keiretsusystem is closed, unfair, and violates anti-trust laws wasviewed in Japan as a dishonorable critique. Otherinternational organizations have given opposingopinions that support the Japanese system. The idealsthat constitute “the Japanese way” — forming long-termrelationships between parts manufacturers andbusinesses, cultivating mutual education anddependence — are now gaining ground internationally.

In the United States, the American big threeautomakers, when deciding on a subcontractor, narrowtheir choices to the manufacturer who supplies systemcomponents. This is a form of single sourcing, oftenmanifesting in a contract that lasts from three to fiveyears. (Procurement is limited to a single, reliable partsmanufacturer.) The parent company selects the systemsupplier whose technology can be trusted, and thenplaces long-term orders. This model is found globally,especially among European auto manufacturers, withthe exception of Bosch in Germany.

But these business relationships are being reconsidered,and many are looking at Japan’s vertical pyramidsystem, particularly French car companies such asPeugeot and Renault. The Japanese way of doingbusiness may be catching on in foreign countries.Economic scholars who have evaluated Japanesetransactions view them as efficient and dynamic modelsof mutual dependence.


The manufacturing industry now leads the Japanesee c o n o m y. Since 1975, pundits have predicted that themanufacturing industry would reach the limits of itsg rowth and be surpassed by the postindustrial softwareand service industries. But in fact, these emerg i n gindustries, as well as the information and re s e a rch anddevelopment industries, have caused manufacturing top ro s p e r. This is particularly true with assemblym a n u f a c t u rers in the automotive, electronic, and machineindustries. Companies that improve the everyday life ofpeople, such as synthetic resin and textile manufacture r s ,also are thriving as they combine various technologies,components, and units. So, various companies are linkedand cooperating within a divided production system. Forexample, almost 30,000 components are needed for justone car and even big manufacturers like Toyota, Nissan,and Honda depend on outside subcontractors andsubassemblers for important functions.

According to the financial statements of carmanufacturers, material costs contribute 70 percent to80 percent of the cost of a car. Thus, the Japanesemanufacturing industry is organized vertically by manycomponent makers who share the business. Thisstructuring strategy and management through businesssharing explains the strength of the Japanese automotiveindustry.

We will now explain the management strategy —transactions through business affiliations — in theJapanese manufacturing, electrical machinery, andautomotive industries.

Comparisons between the Electrical Machineryand the Automotive Industries

First, we will start by comparing final products. Eachindustry differs in its management strategies and

production systems, and we will show how, as a result,each differs in their subsequent business affiliations.

Comparing Characteristics of the FinalProducts from Both IndustriesThe electrical machinery industry provides finalproducts for a range of items used in everyday life:household electrical appliances such as refrigerators,fans, air conditioners, lights, and washing machines;light electrical appliances such as televisions, radios,video cassette recorders, telecommunicationinstruments, and measuring instruments; and heavyelectrical appliances such as electric power generators,mega-sized motors or transformers, and electricalmachines for any industry. As examples, we chose lightelectrical appliances for the purposes of this study, aswell as one passenger car and one truck.

Comparing the price of final products, we find that lightelectrical appliances, a public consumer good, averagearound $2,000 (USD). A passenger car’s price rangesfrom $10,000 for an economy car to tens of thousandsof dollars for a luxury sedan, and $10,000 or more for atruck.

Light electrical appliances, such as televisions orpersonal computers, are used indoors and generally aresmaller in size than vehicles, which are larger and usedoutdoors.

When we compare support industries, we find that thelight electric appliance industry relies on electriccomponents, while the automotive industry relies on amuch wider range: electric and mechanical machinery,as well as electric components. The automotive industryalso uses more raw materials, such as steel, aluminum,glass, rubber, and plastic, etc.

Case Analysis of Two Major Japanese Industrial Fields


Comparing speed of technical innovation, we find rapidprogress in the electronics industry, with miniaturizationand performance improving almost daily, particularlywith computer hardware and software. In fact, theintense competition among personal computermanufacturers has reduced its lifecycle to only threemonths. On the other hand, while the automotiveindustry has accumulated advanced technology, thespeed of technical innovation in this industry is slower.This is true even with Toyota’s advancing hybrid powertechnology, as shown in its Prius model, and with othermanufacturers’ fuel-cell technology.

The lifecycle of a light electrical appliance isapproximately one year, especially for a consumer good.Also, as stated above, the lifecycle of the personalcomputer is three months. But the lifecycle of a caraverages four or five years, even if manufacturersintroduce minor changes to a model each year. Marketcompetition is tough for both industries, but is moreacute for the light electrical appliance industry becauseof shorter lifecycles.

Transportation costs are greater for the automotiveindustry due to its products’ capacity and weight.

Products produced by each of these two industries areused in very different ways. Generally, electricalmachinery is used inside the home and placed at a fixedsite. By definition, the automobile is used to transportpeople and freight and is therefore subject to suchenvironmental conditions as rain, wind, temperature,and humidity. This difference requires automotivemanufacturers to adhere to stricter specifications fortheir products in order to protect human lives.

These differences are shown in Figure 4.

These different product characteristics impactmanagement’s relationship with parts suppliers andassemblers. For example, a product’s lifecycle impacts

production lead times. Or, higher durability requireshigh-quality specifications. In this case, when demandincreases, it is more difficult for a manufacturer tochange its supplier. In addition, the complexity ofproduct mix or features will dictate supplier selectionand involvement. Ultimately, these differences impact alltransactions between manufacturers and suppliers.

Electrical Machinery Industry

Due to a growing trade imbalance, the United Statesand Japan in the 1980s examined the practice ofconducting transactions through business affiliations.The United States said that Japan’s import restrictions,coupled with exclusive transactions done only throughbusiness affiliations, impeded sales of quality andmarketable U.S. products. At that time, Japan wasimproving the performance of its products, its prices,and its delivery times.

Type of Keiretsu: Electrical Machinery IndustryIn the electrical machinery industry, “transactionsthrough business affiliations” fall into one of threecategories: bank-related corporate groups (bankingKeiretsu), technology-sharing corporate group(component-sharing Keiretsu), and production-sharingcorporate group (production-sharing Keiretsu).

1) Bank-related corporate group (banking Keiretsu)This corporate group revolves around a bank. Eachcompany in the Keiretsu performs the followingfunctions: crossholds stock, finances loans through thebank in the Keiretsu, attends CEO meetings, exchangespersonnel between each company, and interacts withinthe group via a general trading company. Companieswithin the group benefit from stable stock shares, costreductions, close communication, and shared risk-taking. In the electrical machinery industry, most majorproducers belong to one of six corporate groups, listedin Figure 5.


Figure 4Comparisons of Each Industry

Industry Electric AutomotiveUnit Price Low in price High in pricePhysical size Small BigRange of the industry Narrow WideTechnology change Very fast ModerateProduct life cycle One year More than five yearsCompetition Very tough ToughTransportation costs Low HighUsage conditions Fixed installation MobileProduct liability Moderate CriticalNumber of components Less than 1,000 More than 10,000

2) Production-sharing corporate group (production-sharing Keiretsu)This relationship is between a major manufacturer andthe subsidiaries to which it outsources productioncapacity. These dependent companies are organizedinformally. They enjoy stability in request orders andmaintain interdependent relationships with each other.Until the mid 1980s, these contract companiesconcerned themselves with preserving resources. In fact,the purpose of their informal organization was toguarantee resources.

It is said that this type of Keiretsu mirrors the characterand familial relationships found in Japanese society.They also are criticized most often for their exclusivity.

History of the Management Strategy in theElectrical Machinery IndustryWe explained above that the Japanese electricalmachinery industry has three categories of Keiretsu. Inthis section, we will examine in detail the relationshipbetween one major manufacturer and its subsidiaries.

After the Second World War, the electrical machineryindustry in Japan flourished remarkably. By the 1970s,Japanese society was quite stable. Its standard of livinghad improved, and most people owned householdelectrical appliances, such as washing machines,refrigerators, televisions, and audio equipment, etc.

Japanese household electrical appliances appeared notonly in the domestic market, but in international onesas well. They were known for their high quality andadvanced technology. Many Japanese companiescontributed to the high quality of these products byparticipating in programs like Quality Control Circle(QCC), Japan’s original bottom-up program, and TotalQuality Control (TQC), its top-down program. TheJust-In-Time (JIT) system also contributed to improvedproduction planning and control in the field. Eachcompany studied these programs and operated soefficiently that they actually changed their corporatestructures.

When the diode and transistor replaced the vacuumtube, products became lighter and more compact.Because each electric product used many of the samecomponents, parts makers worked with all the majorcompanies and evolved as businesses in their own right,not necessarily linked with a single customer.

Large companies relied on subsidiaries (smallerenterprises) for such processes as sheet metal cutting,injection molding, metal die production, etc.

Businesses that produced transistors or diodes became alarger part of the semiconductor industry. The electricalmachinery industry grew more in the 1980s andbecame a part of the Keiretsu system, i.e., “transactionthrough business affiliation.” At that time, productionprocesses improved even more as foreign companiesbegan studying them. Due to growth within theJapanese market and to high numbers of exports —spurred by high quality and low prices — every electricproduct manufacturer had to expand its production andsales capacity. Also, because of diverse user needs,electric machinery makers had to develop differentiatedmarket strategies.

Following this industry growth, Japan’s main exportschanged from textile goods to household electricalappliances and automobiles. The electric machinerymakers expanded, especially those that sold computers,semiconductors, and telecommunications equipment.Those companies include Fujitsu, NEC, HITACHI, andTOSHIBA. Legacy and mid-size computers becamepopular, and companies developed online banking,POS, and auto-process control systems. Eventually, salesof computer hardware and software increaseddramatically. In the semiconductor field, NEC led othercompanies in DRAM sales. At that time, frictionincreased between the United States over trade barriersin the semiconductor industry, and the issue wasdiscussed in the Japan-U.S. Semiconductor Initiative.Japan was known then for its strength in manufacturingand for its companies’ initiatives to increase productioncapacity.


Figure 5Six Corporate Electronics Groups

Mitsui Group: Toshiba, Nihon UnisysMitsubishi Group: Mitsubishi ElectricSumitomo Group: NEC, Sumitomo ElectricFuyo Group: Yokogawa Electric, Showa, Denko, Oki ElectricSanwa Group: Sharp, Iwasaki Electric, KyoceraIchikan Group: Fuji Electric, Fujitsu, Yasukawa Electric

One strategy to increase production capacity was toestablish subsidiary companies. Almost all of the majorJapanese companies built subsidiary companies in thecountry to assemble final products. This was done toretain production capacity as a corporate group. If acompany could not expand its capacity, it established anOEM contract with a capable manufacturer. Production-sharing Keiretsus served as subsidiaries for the purposeof increased production capacity. Companies organizedthese groups in order to control and retain resources forincreased production.

The reasons for establishing the Keiretsus are as follows:

1) Major companies moved the production of low-value-added products to their subsidiaries inorder to concentrate on high-value-addedproducts and to expand their market share fornew technology.

2) In any market, it is essential to produce a reliablefinal product. The Japanese emphasize quality.Thus, manufacturers chose good suppliers toprovide continuous high-quality productioncapability. This helped them avoid excessproduction and problems with consumers.

3) Management had to manage certain risks,particularly those that required adjustingproduction loads. For example, in somecircumstances orders exceeded productioncapacity and new equipment and personnel wereneeded.

4) Increased sales for major companies meant acorresponding increase for subsidiary companies.Accordingly, both tried to maintain the close andcooperative organizational structure.

5) Major companies maintained close andcontinuous relationships within their Keiretsu inorder to prevent technological information frombeing disclosed to competitors.

In the late 1980s and early 1990s, the Japaneseeconomy began to stagnate. In the computer businessfield, the era of the legacy computer evolved into theera of the client-server. Because of these changes,businesses that produced legacy computers, such asIBM and Fujitsu, saw sales decline, and businesses thatproduced servers, like Sun Microsystems, grew rapidly.

In the semiconductor field, Intel, Samsung, andTaiwanese chipmakers achieved great advances, causingJapanese companies to lose their dominant position.Advances in computer microchip technology meant thatit was used in more and more items, such as householdelectrical appliances, automobiles, and industrialmachines.

Global competition intensified. The collapse of thebubble economy caused production capacity to exceedmarket demand. To cope with a collapse in prices,Japanese companies transferred production overseas.Many Japanese companies had to address excesscapacity and bad assets. The ability of overseascompanies to produce items at lower costs squeezed theJapanese economy even more. Eventually, almost allJapanese companies had to reorganize and rethink theirmanagement strategies.

To compete globally and to counter the collapse inprices, each Japanese company returned to its corecompetency. During this “restructuring,” each companynarrowed its focus and concentrated on its strongpoints. From the mid-to late-1980s and the early 1990s,the yen appreciated to almost 80 yen to the U.S. dollar.This affected Japanese exports and contributed to thetrend of moving Japanese plants overseas. The volumeof manufacturing in Japan decreased.

Of the three types of Keiretsu, the production-sharingKeiretsu was affected most by this businessenvironment. Major companies loosened connectionswith their subsidiaries and created new ones overseas.As a result, major companies liquidated theircooperative organization of subsidiaries.

This paper focuses on the following reasons thishappened:

1) The architecture of the final product became moreopen-ended and the position of the subsidiariesdecreased.

2) Production costs in Japan were too expensive.3) The quality of production overseas improved,

especially in Asia.4) The IT infrastructure and networks improved,

making overseas transactions easier.

Contract owners shifted their focus from retainingresources to keeping costs down. Eventually, majorcompanies felt burdened with the responsibility ofsubsidiaries’ managements and broke loose from thoseconnections.

They then created relationships with overseasenterprises. These relationships differed from those inthe former Keiretsu in that they were based on typicalbusiness transactions and contracts. An example of thisis a contract with an electronics manufacturing service(EMS).

The Japanese subsidiaries found it difficult to obtainorders from major companies and in many cases eithershut down, changed their business focus, or left the


Keiretsu. The interdependence between majorcompanies and subsidiaries ended. This had been basedon the subsidiary earning a long-term contract bymeeting design specifications. It was a system thatallowed for flexibility. But the growth and increasedclout of overseas subsidiaries weakened theseinterdependent relationships in Japan. Figure 6summarizes the strategic changes in the electronicmachine industry after the 1980s.

Supply-Side NetworkingCurrently, there are two ways companies in theelectronic industry share their manufacturing processes.

1) They share more often with overseas EMScompanies.

2) They switch purchasing systems, from a parts-unitmodel to a module-units model. They alsopurchase rather than manufacture many products.

The transactions with overseas EMS companies are notexclusive, as they were in the former Keiretsu groups.Almost all are based on a Service Level Agreement(SLA). Consequently, companies frequently switchsubcontractors and they are not accused of being closedor anti-competitive.

When a company purchases rather than manufactures aproduct, it generally uses a large, general supplier. Ittends not to select cooperative suppliers, but choosessuppliers based on their performance. These are notKeiretsu relationships. Rather, it is the process ofconstructing a good supplier base.

In this relationship, a contract owner and a supply-sidecompany aim to build a “win-win” relationship. Wecannot call this a Keiretsu transaction. Electronicscompanies are at a crossroads. Their success will bemeasured by their ability to accumulate powerfulsupplier groups. Figure 7 shows the present extensionof the supply-side network.


Figure 6Evolution of Strategic Focus in the Electronics Keiretsu

1980s: Growth

• Increase of production capacityaffiliatessub-contractionmarket transactionOEM

• Technological alliance with foreign enterprisesQuantitative Expansion

1990s: Saturation

• Restructuring• Integration of affiliates• Integration of outsiders• Domestic production of “key module”• Local production• Restructuring of global strategy

Strategic Alignment

Figure 7Supply Networking

Trends in the Keiretsu NetworkElectronic products are made using specializedtechnology and manufacturing processes. Figure 7shows the network of businesses involved in thisprocess. A technology subsidiary that has a robustrelationship with its parent company specializes in thatcompany’s needs, and vice versa. In the manufacturingfield, subcontractors specialize in the module andcomponent parts that constitute the core strength of theparent company. Manufacturers specializing in partsproduction are connected to the network by a contractwith the parent company.

It is clear that the gap between winners and losers isexpanding. Many parent companies have shut downtheir money-losing subsidiaries and productmanufacturers, and have created a new productionnetwork system. The purpose of this system is toincrease their integrated power. They do this bydispatching directors, specializing in technology, andeducating companies in the network about their guidingprinciples. Also, many parent companies have evaluatedtheir overseas subsidiaries and, as a result, changedlocations or built new ones. Noteworthy shifts inproduction have been to China. Japanese subcontractorshave thoroughly examined and reduced theirproduction capacity, but have become more flexible andcapable.

For example, Yokogawa Electric Corporation conducteda performance evaluation and, as a result, consolidatedits 15 domestic subsidiaries into three. Hitachi, Ltd. cutits number of suppliers by half. Figure 8 illustrates this.

A parent company closely cooperates with its domesticand overseas subsidiaries and has the power to controlmanagement principles, technology, and productionsystems, etc. They conduct transactions with suppliersusing contracts and try to gain the following advantagesover their rivals.

Advantages of the networking system:

1) Diversification of management risk2) Actualization of human resources (by sending

expert staff into the companies in the network)3) Maintaining a stable production system4) Protecting technology

On the other hand, there is less fear that subsidiarieswill lose their competitive edge by relying too much onthe parent company. This is because the collapse of thebubble economy forced them to learn to compete witheach other. Every parent company has strengthened itspurchasing function with domestic and overseas non-group suppliers and is poised to begin a more openprocess of procurement. This will be based on thedevelopment of technological collaborations.

The Future Course of Keiretsu Transactions inthe Electronics IndustryWe are going to review the history of the Keiretsu in theJapanese electronics industry and forecast trends.

The most dramatic change in the Japanese economyfollowing World War II was the collapse of the bubbleeconomy in the 1990s. The predominant Keiretsusystem had functioned well during the growth years


Figure 8The Members of the Supply-Side Network

DomesticAffiliates

ParentsHeadquarters

OverseasAffiliates

DomesticSub-contractors

OverseasSuppliers

DomesticSuppliers

prior to that collapse. During the 1970s and 1980s,Japanese electronics companies provided a largequantity of high-quality products to markets all over theworld. During this time, they grew in order to meetproduct and sales demands. They formed a Keiretsustructure with the following characteristics:

1) Business relationships built through stable andexclusive transactions, all carried out under theumbrella of the parent company

2) Long-term, continuous transactions, alsocontrolled by the parent company

3) Subsidiary dependence on the parent company,built via a system of financial support, thedispatching of staff, custom-made supplies, andthe exclusive possession of information

4) A management policy that did not rely oncontracts, but on tacit understandings, and thatrequired the cooperation and continual effort(Kaizen) of the contractors to always pursuetechnology improvements

Several factors combined to prompt the Japanese toreconsider and restructure the Keiretsu system. Theyinclude the Japan-U.S. Structural ImpedimentsInitiative, which was highly critical of the Japanese;economic stagnation beginning in the late 1980s, whichpreceded the collapse of the bubble economy; rapidlydeveloping global transaction relationships; the abilityof neighboring countries to improve theirmanufacturing processes, production control andquality control; and the ability of countries like SouthKorea, Taiwan, and China to maintain low labor costs.These developments prompted the Japanese toreconfigure relationships with subcontractors, as shownin Figure 8. These changes are still being carried out inthe technical fields. Company groups have establishedjoint ventures to cooperate with rival groups in theareas of technology and development.

For example, Hitachi Ltd and Mitusbishi ElectricCorporation have established Renesas TechnologyCorp., a semiconductor manufacturing company; andHitachi, Ltd. and NEC Corporation have establishedElpida Memory, Inc., a DRAM manufacturing company.Mitsubishi Electric Corporation later joined Memory,Inc. Thus, networking among rival companies hasincreased, irrespective of each other’s previous Keiretsurelationships.

These new relationships within the semiconductori n d u s t ry, established in the midst of keen globalcompetition, have impacted the entire electro n i c si n d u s t ry. Figure 9 shows typical relationships betweenthese companies. The Y axis shows the pro c e s sintegration rate and the X axis shows the management

integration rate. The process integration rate includes therole of the vertical supply chain, as well as development,p roduction, and marketing. The management integrationrate includes strategic and administrative objectives anddistribution of an outcome. We can divide Figure 9 intofour sections and can draw lines showing re l a t i o n s h i p swithin and external to a company.

The first cell represents the group of companies that hasfew partnerships with other companies. We call it“integration based on self-sufficiency.” SharpCorporation’s LCD-TV production company is typical ofthis first section. Moving along the X axis one findscompanies that have accelerated integration with anoutside supply chain. Moving up the Y axis we findcompanies that have maintained independence fromoutside companies. The relationship between SonyCorporation and Samsung Corporation, and theoutsourcing of custom IC production, are examples ofthis independence. To promote integration ofmanagement means to do so using traditional Keiretsumethods. Companies in this cell do not have a high rateof management integration because ownership tends totake priority over integration. In contrast to their “win-win” relationships with supply side companies, ownercompanies do not work to strengthen the integrationprocess in these cases. Moving up the X and Y axes wesee companies that have incorporated integrationgenerally. In these cases, companies become strongercompetitors. We call this “integration based onpartnering.”

“Integration based on partnering” exemplifies theprogressive future of the Keiretsu. In this scenario,development, production, and marketing are integratedat a higher level than ever before. Companies thatembrace it are better positioned to compete in a globaleconomy.

Companies have started enterprises based on self-sufficiency irrespective of manufacturing technology andproduction capacity. Many big manufacturers have builttheir own networks with subcontractors while growingtheir businesses, and in that way have expandedproduction capacity. They have built their supply-sidenetwork according to their own needs. On the otherhand, some companies have maintained theirindependence and their management strategies, evenwhile forming cooperative relationships in development,manufacturing, and management. We call this“integration based on an independent style.” A highlycompetitive market is prompting companies tostrengthen management and to optimize theirrelationships with suppliers, particularly by integratingprocesses and management. The companies mentionedabove are indicative of this trend.


Integration by partnering is the most promising trend intransactional relationships. Companies who embrace itimprove their merchandising and manufacturingtechnology in a highly competitive environment. Wecan explain why companies are moving away from self-sufficiency to partnering: a contract owner who operatesby its own selfish interests cannot improve itstransactional relationships, as evidenced by the collapseof the traditional Keiretsu system.

It is probable that “integration based on partnering” willbe the predominant system of the future. But we mustemphasize that it is difficult to progress to “integrationbased on partnering” if one cannot achieve results whenworking self-sufficiently. It is desirable to progress fromself-sufficiency to partnering. However, it is very likelythat such a transition must happen in stages — fromindependence, to self-sufficiency, to partnering. It isdifficult to create productive alliances with othercompanies if one cannot master self-sufficiency.

The Automotive Industry

The automotive industry compares to the electricalmachinery industry (shown in Figure 4) as follows:

1) High in price per unit2) Large and heavy in size3) Wide industrial range4) Moderate technological change5) Product lifecycle relatively as long (as long as four

years)6) High transportation costs7) Usage conditions change (mobility)8) Product liability critical9) Number of components more than 1,000 per unit

Transactions between the automotive companies andtheir suppliers have tended to be stable and long term.In other words, new car development required a stableprocess of design development for cost and safetyreasons. This required car makers to have long andfixed relationships with parts suppliers. To increasecompetition, car makers also required more than twosuppliers. This stable and reliable process allowedsuppliers to better serve the car makers.

To summarize the current state of the Keiretsu system inthe automotive industry, one must look at 1) strategyand 2) future trends.


Figure 9Future Concepts of Transactions in the Electronics Industry

Low Managerial Integration→High

(CollaborativeR&D andProcessing)

Self-Contracting(General Parts)

Independent

(Sony-Samsung)(Custom IC)

Self-Completion(Sharp LCD-TV)

The Automotive KeiretsuThe automotive industry group differs from thefinancial Keiretsu and the Zaibatsu. Large-scaleassemblers form a group that serves as a supplynetwork. The large-scale assemblers are the five majormanufacturers: Toyota, Nissan, Honda, Mazda, andMitsubishi Motors. Some parts suppliers do businesswith non-Keiretsu car makers, but this is an exception.The company groups are as follows:

1) Toyota group: Hino Motors, Ltd. (trucks, buses,large-sized car manufacturer); Daihatsu KogyoCo., Ltd. (light car manufacturer); Kanto AutoWorks, Ltd. (vehicle assembler); Toyota AutoBody Co., Ltd. (vehicle assembler); Toyota Kouki(engines); DENSO (air conditioners); and AisinSeiki Co., Ltd. (transmission cylinder heads).

2) Nissan group: Nissan Diesel Motor Co., Ltd.(large-sized car manufacturer, i.e., trucks andbuses); NISSAN SHATAI (vehicle assembly); andCalsonic Kansei.

3) Honda groups: Honda R&D; Honda access;Keihin; Showa; and Yachiyo Industry, etc.

4) Mazda group: Mazda E&T and Visteon Japan, etc.5) Mitsubishi group: Mitsubishi (large-sized car

manufacturer, i.e., trucks and buses); MitsubishiHeavy Industries; and Mitsubishi ElectricCorporation, etc.

Suzuki, Fuji Heavy Industries, and Isuzu are now partof a General Motors group, so they are not included inthis report.

Automotive parts suppliers historically have had thesame goal as the assemblers: to establish a stable supplybase that can support growth. Following a collapse ofJapanese industry after World War II, every coreKeiretsu company faced the same circumstance: to buildits industry from scratch. All companies embraced theK e i retsu system in order to leverage their competitivenessagainst European and U.S. competitors. Their goal wasto compete in product development, quality, and cost.

Parent companies made changes to the Keiretsu afterthe 1970s energy crisis, which increased demand forsmaller-sized Japanese cars that could conserve gasoline.They had to produce more of these cars and maintainthe quality of their product. This was a transitionalperiod in which Japanese cars were produced not onlyfor local markets, but for export.

Changes in Management Strategy in theJapanese Automotive IndustryJapanese car makers took advantage of the 1970s energycrisis to expand their export business. They marketedtheir cars as “energy-saving, high-performance, low in

cost, and smaller-sized.” They succeeded in that quest,and exports began exceeding domestic sales. The bigthree American auto makers, General Motors, Ford, andChrysler, were slow to meet the demand for energy-efficient cars. Japan’s success in this market causedfriction between the Japanese and U.S. governments. Inthe United States, companies faced a depressedeconomy, unemployment, and labor union difficulties.

In the 1980s, the Japanese dramatically changed thisstrategy and began focusing on local markets in order toease friction between the two governments. In theUnited States, companies began promoting the idea thatproducts sold in the United States should be made inthe United States. This strategy forced parts suppliers tobuild new U.S. production sites and car manufacturersto expand local procurement of parts and components.Many of these local parts manufacturers were instructedand nurtured by Japanese assemblers and componentsuppliers. This strategy worked well and the Japanesecar industry continued to grow, as did the Japaneseeconomy.

In the early 1990s, the economy continued to grow, butlater in the decade the bubble economy burst, forcingJapanese companies to address a sluggish market andlower earnings rates. Many companies had to revisetheir tactics. And, Japanese car makers’ expansionsoverseas created tough competition among automakersglobally. These conditions led to enhanced collaborationglobally and to restructuring in Japan. In theautomotive industry, Japanese, U.S., and Europeanmanufacturers were the key players in reconstructingsupplier groups.

Local production and global competition have greatlyimpacted the Japanese Keiretsu relationships. Butstrategies vary according to each supplier group’sinternal and external circumstances. Toyota’s andNissan’s changes are described below.

New Orientations for Toyota and NissanThe Toyota group stands in remarkable contrast to itscompetitor, Nissan. Over the past 30 years, Toyota grewunabated to become the second largest car manufacturerin the world, while Nissan failed to adapt to changingcircumstances and needs. As a result, Nissan mergedwith Renault, whose French chief executiveconsolidated control of the company. Toyota’s success isinstructive, particularly when we examine its Keiretsurelationships.

1) ToyotaToyota’s changes included a shift to partneringintegration. This included:


A) Enhanced cooperation in its organization ofKeiretsu suppliers (syndicate). In the automotiveindustry, a syndicate often takes the form of a“cooperative organization,” which enhances a carmaker’s relationship with its suppliers. Toyota isinvolved with a parts suppliers’ organization (Kyoho-kai) and an equipment and logistics organization (Eiho-kai). In the 1990s, almost all companies tried to sourcenew suppliers or reduce their supply bases to cope witha rigid economy, often disregarding traditionalcooperative syndicates. However, Toyota took differentmeasures, and its sales grew domestically and globally:they enhanced their cooperative syndicates.

B) Enhanced communication and the transfer oftechnology by loaning employees. One way Toyotaenhanced its supplier relationships was by loaningemployees to its suppliers. These employees taughtToyota’s technologies, such as Kanban, to the suppliersinvolved with its production system. Suppliers acceptedthe loan of a Toyota employee to help them restructure.

C) Investment in production capacity and re s e a rc hand development to lessen management risk. As itssales gre w, Toyota maintained investment in these are a sas a way to enhance its relationship with suppliers.To y o t a ’s Keiretsu suppliers are indispensable partners inthe eff o rt to cover shortcomings. Toyota invested in thesuppliers’ equipment and its installation. It did so with itsnew brake system company, ADVICS, which wasestablished by Toyota, Aishin, Denso, and SumitomoDenso; and with its new power steering company, Fabes,which was established by Toyota, Denso, Toyota Koki,and Koyo Bearing. Toyota re f o rms its suppliers’ methodsand updates suppliers’ technology, creating a new kind ofalliance that operates efficiently and easily incorporatesnew technology. This is a quick and efficient way forToyota to maintain sales and integrate new technology.

The two companies mentioned above are described asfollows:

ADVICS, the new brake system company founded byfour companies: Toyota, Aisin Seiki Co., Ltd., DENSO,and Sumitomo Electric Industries, Ltd.(www.sei.co.jp/news/press/01/prs172_s.html).

The advanced brake system company founded by ajoint investment of the above companies wasestablished on July 3, 2001. In terms of the investmentratio, Aisin Seiki Co., Ltd., is at 40 percent and theremaining three companies are at 20 percent each.

The president and others were recruited from AisinSeiki Co., Ltd. As a result, ADVICS adopted systemsfrom Aisin Seiko Co., Ltd.

Three years after its founding, sales from April 2003 toMarch 2004 were 211.8 billion yen. As of March 31,2004, there were 734 employees.

As a result of technological innovations, the brake —which functions as one of the most importantcomponents of a vehicle — is not viewed as a solitarypart. Rather, it is a system to be developed and thatcompetes with other brake design systems. Brakesystem development has become part of a car maker’scompany plan. The design and manufacturing of theseentire “systems” creates a new market for firms tocompete. A car company systems supplier aims tomanufacture the best, most-widely used brake systemand sell it globally.

Farr Bess, the new electric power system companyfounded by four companies: Toyota, DENSO, ToyotaKouki, and Koyo Seiko (www.koyo-seiko.co.jp/japanese/corpo/news/pdf/KoyoNRJ021003.pdf). The companywas established on November 1, 2002.

In terms of the investment ratio, Koyo Seiko is at 45percent, Toyota Kouki is at 35 percent, and DENSO andToyota Motors each are at 10 percent. Workers wererecruited from Toyota Kouki.

Development is at Farr Bess and production is at ToyotaKouki. Beginning in January 2004, the company begandeveloping and producing an electric power steeringsystem. (http://chubu.yomimuri.co.jp/news_k/chei-040114_2.html)

The company plans to have 300 employees and to have40 billion yen in sales by 2007. As called for in itscharter, the company seeks to develop the nextgeneration of electric power steering systems that areaccepted globally.

D) Maintain the Keiretsu suppliers’ mutual competitiveadvantage. Toyota’s policy is to maintain the competitivecircumstances that increase suppliers’ competence.

2) NissanDuring the years 1993 through 1997, Nissan Motorshad only one profitable year, in 1997, according to itsconsolidated accounting system. During this time,Toyota grew steadily. After Nissan merged with aRenault group in 1998, it produced the Nissan RevivalPlan (NRP) in October 1999. The plan called forreducing by 20 percent its total cost of ownership(TCO) by March 2003.

Nissan called this strategy the “Nissan 3-3-3 program.”The first three stands for renewed teamwork betweenthe supply, purchasing, and technology development


functions. The second three stands for increased activityin the regions of Japan and Asia, America and Europe,and the Middle East and Africa. The final three standsfor the three years that Nissan scheduled to implementits plan. After introducing the NRP, Nissan was able toreduce its costs by 15 percent by March 2003.

The following list shows how Nissan implemented itsplan:

1) Nissan dismantled its system of Keiretsu suppliers.Nissan already had dissolved “Takara-kai” in 1991.While “Nissho-kai” had 193 suppliers registered in1996, that number dropped to 170 by 2004. All butfour of Nissan’s 1,394 stock holdings were sold. Well-known traditional Keiretsu suppliers seceded from theNissan Keiretsu group: Fuji-Kiko, Tachiesu, Ichiko,Ikeda bussan, Yorozu, and Niles parts.

Nissan took a hard look at its supply base, part by part,a process called supply base rationalization. It adopted anew management strategy: to increase volume in orders,but to reduce costs as low as possible. It became evidentthat some suppliers failed to meet this criterion. Nissancontinued to sell its stock in Keiretsu suppliers toincrease its cash flow. Between March 1999 and March2004, 102 companies left the Nissan Keiretsu.

2) Nissan implemented a new supplier selectionsystem, developed by a Renault-Nissan team.In 2001, Renault and Nissan formed a cooperativepurchasing organization called Renault NissanPurchasing Organization (RNPO) in order to moreeffectively procure all materials used directly andindirectly in production. They hoped to realizeeconomies of scale by purchasing larger volumes. Thegroup increased its purchases to 70 percent of thecompanies’ total purchases.

3) Nissan developed new ways to use the Keiretsu.What is the future of the Keiretsu’s involvement withNissan? Nissan’s NRP strategies prompted it toreorganize suppliers in two ways: One was through thepotentially powerful RNPO and the other was toenhance relationships with current suppliers. Forexample, Calsonic Kansei is implementing module-oriented systems in order to strengthen its relationshipwith Nissan in the areas of finance and humanresources. Other examples of companies who areserving important functions in module-oriented systemsare Nissan Koki, with engines; JATCO, withtransmissions; and Aichi Kikai, with enginetransmission systems. These companies remain as pureKeiretsu suppliers and will support Nissan indefinitely.Nissan still is considering reforms that will form newKeiretsus with other important suppliers.

The Direction of the Keiretsu in the AutomotiveIndustryThe trends depicted in Figure 9 for the electronicsindustry can be summarized and applied to theautomotive industry.

1) Integration inside the company (verticalintegration): Until the 1970s, the big three automakersin the United States were in this group. This method ofinternal production resulted in about 70 percent of theirparts being internally manufactured, and was effectiveunder the circumstances. Few model numbers weremass produced. However, as the need increased forhigh-variety, low-volume manufacturing and companieshad to invest in more production facilities, this methodproved too rigid. Companies became inefficient and lessable to compete. Technological innovation and qualitybecame obsolete. Organizational paralysis, the so-called“large corporation disease,” occurred.

2) Integration of the traditional Keiretsu: In Japan,automotive companies did not have the capital tointernally produce their own parts. After World War II,it became common for them to procure parts from othercompanies and assemble them. This became the basicmethod of operation. Because the industry needed abroad range of parts and services — the power train,transmission, body shaping, and assembly — manycompanies played key roles in the Keiretsu structure.These companies had close ties to the parent company.

3) Integration of independence: There are someautomotive parts that are used in other industries. Thesteel plate, tire, brake, paint, and electronic componentsare some of them. While suppliers of these productshave a close relationship to the parent company, itwould hinder sales if car companies demanded theseparts for their exclusive use. In this case, the suppliermaintains independent capital and management.Although the parent company provides instruction, thesupplier can produce all parts with its own technology.In this sense, the company is independent.

4) Integration of part n e r i n g : even independentcompanies and companies within a traditional Keire t s uhave been increasing their technical skill and capital.In recent years, companies that provide electricalp a rts, new materials, and new technologies havef o rmed new systems. Under the circ u m s t a n c e s ,automotive companies and parts suppliers develop asp a rtners. The relationship between automotivecompanies and parts suppliers will change to one thatintegrates partnering in the form of joint venture s ,such as ADVICS and FARBES, mentioned previously inthe Toyota section.


The trend is for supply chains to move from lowmanagerial and process integration to high managerialand process integration. Partnering is consideredessential to improving competitiveness. The automotiveindustry is being asked to overcome a range ofproblems: global warming, pollution, and traffic andsafety issues. It seems difficult to resolve these, but theindustry must do so. It is even more necessary topromote integration of partnering.


Japanese Keiretsu relationships and their ensuingproduction systems enhanced the competitiveness of thecountry’s economy, spurred economic growth, andenabled companies to form relationships based onmutual trust and cooperation. However, the Keiretsusystem has gradually and steadily changed from theinside due to globalization, economic changes in Japan,and labor shortages. Parent companies accelerated thistrend by altering their business strategies and formingnew relationships with suppliers. It was difficult forboth parent companies and suppliers to make changes.After all, the traditional Keiretsu historically had been asource of strength for the Japanese economy. But itsshortcomings became apparent during the emergence ofthe global economy.

The following results are from a March 2004 CAPSJapan questionnaire, in which we saw some of thesetrends emerge. We will summarize the results.

S u rvey Results

Overview

Subject: Number of parent companies surveyed aboutnew Keiretsu relationships: 1,128 (Tokyo StockExchange).

Management position: Head of procurement andpurchasing

Method: Mail (Some replies were sent by fax or e-mail.)Number of companies that replied: 49 (rate of reply: 4.3percent)

Survey period: March 5, 2004 to March 26, 2004

Question 1 asked about past and future criteria andimportant characteristics for a supplier. This changeshowed marked differences in past and future Keiretsurelationships.

Figure 10 shows how the importance of six supplierselection criteria rate, now and in the future. Cost is stillthe most important criteria, but the survey suggests thatsocial responsibility, development, and environmentalpreservation as emerging concerns in terms of supplierselection. Suppliers who can provide requested itemsand also adapt to emerging trends in Keiretsurelationships will be highly valued. Quality still cannotbe underestimated, but it is evaluated with othercriteria.

Question 2 asked about the current state of Keiretsurelationships (see Figure 11). More than half of thecompanies said the Keiretsu still exists. The number ofcompanies is increasing that said those relationships arewaning. This suggests traditional Keiretsu relationshipsare becoming less common.

Question 3: When asked how their Keiretsurelationships will change, few companies said it willstay “as it is.” Close to 70 percent of the companies saidthey would like to either abolish or reconsider theirKeiretsu relationships.

It is clear that companies want to transform Keiretsurelationships. Only about one-third of the respondentssaid they should not change. Keiretsu relationships areevolving. This change is inevitable.

New Keiretsu Strategies

We have investigated trends in Keiretsu relationships inthe electrical machinery and automotive industries. As

F u t u re Orientation: The New Keire t s u


shown in Figure 13, the starting point in this matrix isthe lower left, the “self-completion” category. U.S.automakers maintain some aspects of this, i.e., theyhave their own managerial resources and manufactureand assemble final products. A company in thiscategory will transfer to outsourcing only if it finds abetter product outside its purview. When a company isoutsourcing items, or subcontracting, there is a higherlevel of managerial integration. On the other hand,

independent subcontractors integrate their processes,but maintain independence at the managerial level.Sony and Samsung are examples of this in the electricalmachinery industry. Subcontractors expand theirbusinesses outside of the Keiretsu, as shown by thearrow in the center of Figure 13. Denso, in Toyota’sKeiretsu, is another example. “Dependence” is a type ofpartnership integration, or strategic alliance. In otherwords, multiple companies work together in a specific


Figure 10Question 1: Selection Criteria

Figure 11Question 2: Current Keiretsu Relationships

(CAPS Japan 2004)

business arena, by collaborative investments or bycontract. When competition is fierce, they will formcollaborative companies. Companies need strategicalliances to become stronger. We mentioned “partneringintegration” in a previous chapter. This trend emergedduring a time of economic downturns and fierce globalcompetition. It is difficult to say how many companieswill follow the trend and develop dependentrelationships. As we have said, companies that can self-

integrate will have the economic clout to continuegrowing. This transformation is inevitable.

Management Issues in the New Keire t s u

We depict here the point of process integration andmanagerial integration in Toyota and Nissan. Weconcluded that both companies have the same goal.


Figure 12Question 3: Changing Relationships

Figure 13Direction of New Keiretsu Strategies

Nissan had used its Keiretsu relationships extensively,but four years ago, changed its direction. Now it isintegrating its processes with suppliers, looking for newsuppliers, and building relationships that are mutuallybeneficial.

On the other hand, Toyota has strengthened Keiretsurelationships by developing independent companiesthat can compete globally. Toyota considered thestrengths and weaknesses of its Keiretsu relationships,coordinated alliances, and merged Keiretsu companies.Toyota and Nissan differed in their approaches, buttheir results may be similar.


Figure 14Management Issues in the New Keiretsu

ProcessIntegration

ManagerialIntegration

Manufacturing was the core industry that drove theJapanese economy after World War II. After 1975,economists predicted software companies and theservice industry would become stronger, and manyJapanese worried about the future of manufacturing.Software companies and the service industry, along withtertiary industries surrounding manufacturing, i.e.,research and information technology, contributed toJapanese prosperity. Manufacturers, especially assemblycompanies (automotive, electronics, mechanical) andevery-day-life-related industries (plastics, fibers) weretied to a wide range of industries and technologies. Forthis reason, a wide range of companies participated inJapanese economic prosperity. For example, automotiveproducts are comprised of more than 20,000 parts.Toyota, Honda, and Nissan (brand manufacturers) onlydesigned final products and left the design andmanufacturing of important functional components tooutside firms. Most procurement was done outside thecompany. According to financial statements from eachcompany, up to 80 percent of production costs werefrom outsourcing and procurement. Japanese companiescould not exist without supplier companies.Component suppliers in a divided production systemstrengthened the Japanese economy. Of course, there areproduction divisions in Europe and the United States.The Japanese differed from them in that dividedproduction systems were pervasive throughout all mainindustries. We examined Keiretsu relationships andtheir emerging trends in these major industries.

CAPS Japan explores one theme every year. In the past,we studied purchasing issues in the Japanese economyand supply management (strategic procurement) inlarge corporations. We found that the automotive andelectrical machinery industries drive much of theJapanese economy. They contributed to the strength oftraditional Keiretsu relationships, but are now leadingthe changes to those relationships. We believe that new

Keiretsu models will emerge not only in Japanesecountries, but around the world. Supply managers ofthe future will have to lead the way in developing newKeiretsu relationships.

C o n c l u s i o n


Explanation: Introduction of institutional economists

O.E. Williamson: Mr. Williamson is an institutionaleconomist who divided trade into “spot trade,”“continuous trade,” “internal trade,” and stated tradestability.

J.R. Commons: Mr. Commons is an institutionaleconomist who stated, “Organization is going concern.”

H. Leibenstein: Mr. Leibenstein is an institutionaleconomist who stated “Company is a humanorganization which has emotion and mind. Theefficiency of organization is dependent on person.”

(1) “The Merits and Demerits of Keiretsu,” HiroyukiOgiwara, Hiroshi Karisyu (D & M, Nikkei Mechanical,Sept., 2003)

(2) “Counterattack by Keiretsu Country Japan,” IwnZusherinof, translated by Heihachi Nakamura(Kobunsha)

(3) Tadao Kiyose, Koichi Shimokawa, “CurrentKeiretsu” (Nihon Keizai Hyouronsya)

(4) Shuichiro Nakamura, “Beyond the Keiretsu” (NTTShuppan, 1992)

(5) Masahiro Shimoya, “Japanese Keiretsu and Group”(Yuuhi-kaku 1996)

(6) Hiroshi Okumura, “Dismantle Keiretsu andCompany Capitalism” (Shakai-shisousya)

(7) Yukinobu Murakami “The Bankrupt Day ofAutomotive Component Suppliers” (Apple Shuppansha)

(8) Hiroshi Shioji, T.D. Killy, “The Comparison betweenJapanese Automotive Dealer and USA from a Point ofKeiretsu” (Kyuushu-Daigaku Shuppankai)

(9) Shijyo Muramatsu “Outline of Management” (Chuo-Keizaisha, 1995)

(10) Kunihiko Fujiki “Change of AutomotiveComponent Trade-Dismantle Keiretsu”

(11) “Japanese Company Group” (ToyoKeizai, 1992)

(12) Hiroshi Okumura, “Japanese Six Company Group”(Diamond, 1976)

(13) “History of Hitachi (1), (2)” (1960)

(14) Masaru Udagawa “Managerial Thinking of theProcess of Nissan Concern” (1972)

(15) Katsumi Shimada “The Merit and Demerit ofKeiretsu and Future” (Fair Trade No. 491, 1991)

(16) Seiichiro Yonekura “What is Keiretsu” (Nihin-keizaiShinbun, Easy Economics) (Sept., 1991)

(17) Koichi Shimokawa “Keiretsu System in Japan-Caseof Japanese Automotive Industry” (OrganizationalScience No. 17)

R e f e re n c e s


CAPS was established in November 1986 as the result of an affiliation agreement between the W. P. Care y School ofBusiness at Arizona State University and the Institute for Supply ManagementTM. It is located at the Arizona StateUniversity Research Park, 2055 East Centennial Circle, P.O. Box 22160, Tempe, Arizona 85285-2160, telephone480-752-2277.

The Mission Statement: CAPS contributes competitive advantage to organizations by delivering leading-edgeresearch globally to support continuous change and breakthrough performance improvement in strategic sourcingand supply.

Research published includes more than 60 focus studies on purchasing/materials management topics ranging frompurchasing organizational relationships to CEOs’ expectations of the purchasing function, as well as benchmarkingreports on purchasing performance in 26-plus industries.

Focus study re s e a rch under way includes: Major Changes in the CPO and Reporting Line; Integrating the SupplyChain; a n d S o u rcing in China.

CAPS, affiliated with two 501(c)(3) educational organizations, is funded solely by contributions from organizationsand individuals who want to make a difference in the state of purchasing and supply chain managementknowledge. Policy guidance is provided by the Board of Trustees consisting of:Craig Brown, Intel CorporationPhillip L. Carter, D.B.A., CAPSKen Carty, The Coca-Cola CompanyWillie Deese, Merck & Company, Inc.Harold E. Fearon, Ph.D., C.P.M., CAPS (retired)Kathleen R. Fuller, IBMBradley Holcomb, Waste Management, Inc.Judith Hollis, Wendy’s International, Inc.Cecil House, PSEG Services Corp.Vince Hrenak, Raytheon Network Centric SystemsDaniel Krouse, Hallmark Cards, Inc.Becky Lancaster, First National Bank of ArizonaMary McDaniel, FedExMaureen Merkle, SBC Services, Inc.Theresa M. Metty, Motorola, Inc.Robert Mittelstaedt, Jr., W. P. Carey School of Business at Arizona State UniversityRobert Monczka, Ph.D., C.P.M., CAPS/ASUDave Nelson, C.P.M., Delphi CorporationAnthony S. Nieves, C.P.M., Hilton Hotels CorporationPaul Novak, C.P.M., Institute for Supply ManagementJames Patterson, Ph.D., Western Illinois University—Quad CitiesWilliam Ramsey, Honeywell, Vice Chair, CAPSJim Scotti, Fluor CorporationDavid Sorensen, General Mills, Inc., Chair, CAPSKeith Strange, United States Postal ServiceVic Venettozzi, LORD CorporationJoseph Yacura, InterContinental Hotels Group

CAPS: Center for Strategic Supply Researc h


CAPS: Center for Strategic Supply Researc h2055 E. Centennial Circ l e

P.O. Box 22160Tempe, AZ 85285-2160

Telephone (480) 752-2277w w w. c a p s re s e a rc h . o rg

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and the Institute for Supply Management

Documents

Japanâ€™s Keiretsu as a Strategic Relationship with Suppliers 2005