International Business in Japan

AbstractCapitalist and mostly single family centered, Zaibatsu conduct to a unruffled organisation with weak militant forces resulting in what is know as cordial oligopoly. (Niciejewska, 2007, pg 17) Keiretsu networks on the some other hand, with its crossroad stockholdings is more dynamic and provided a more competitive argumentation economy that continued to drive the lacquerese economy during the post fight period. The high viscidity that existed between the active firms in the good keiretsu resulted in employment and operational efficiency that gave japanese manufacturers significant advantages in conflicting marts. The impact of information applied science and the internet in particular enabled the westward countries implement standard end product strategies and change value chain focussing with setting up of contracted production centers across the globe. The japans keiretsu firms struggled to fight the American companies that specialized in single plaza f unctions leading to what is known as the mega competition. Keiretsu networks be unsuitable under modern, glob totallyy competitive, and technologically advanced marketplace conditions. There is definitely a sky towards a more westerly centric trading brass.Introduction lacquerese corporate governance has undergone a lot of change since the Meiji restoration in 1868. It was during this metre that the industrial variety flashed across the world. The Zaibatsu originated when the Meiji government sell out certain government undertakings to a select few private and influential families namely Mitsui, Mitsubishi, Yasuda and Sumitomo. These government controlled firms tardily developed into different industries that helped Japan grow frugalally strong. During this period Japan practiced a closed economic strategy of rules and immaterial technology was totally shunned except in areas concerning domestic development (Thorson & Whitney, 2003). The Zaibatsu which could be most ly translated as monopolies emerged as the corporate bodily structure that underlined the Nipponese economy from this time till the end of the Second World warfare. In particular, the Zaibatsu or the industrial and pecuniary conglomeration of the Nipponese empire controlled a large pct of the national economy during the first few decades of the twentieth century. In the race of the World war 11 and the occupation of Japan by American forces, the Zaibatsu system was broken down and this gave rise to what is what is known as the Keiretsu system which is nothing but a group of companies with cross shareholdings and invidious business organization practices. Though the American government was bent on totally destroying the protectionary policies that the Zaibatsu system represented and proceeded with the dissipation of m whatever Zaibatsu much(prenominal) as Asano, Furukawa, Nakajima, etc they s reachped small of complete dissolution owing to fear of the intrusion of Chinas c ommunist practices into Japan. The formation of Keiretsu was an attempt to democratize the Nipponese economy and to devolve the restrictive policies (Thorson & Whitney, 2003). A brief overview of the firm structures in the Keiretsu and flourishing of Nipponese economy between 1950-90, and its implications to the current Nipponese economy would be discussed in this paper.Zaibatsu (Upto 1945)As briefly mentioned above, the Zaibatsu promoted a strong monopoly with holding companies at the surpass of the pyramid controlling all the operations between the various enterprises deep down the pyramid. Holding companies typically enjoyed the volume of the stocks of these businesses and more than 50% of the overall stocks of all the small companies that constitute the Zaibatsu were owned by its members (Thorson & Whitney, 2003). Stock options were never sold out to any third parties not connected with the zaibatsu making it a totally closed economic structure. The Zaibatsu was in short, a government led economic drive with strategies as well as resources provided for by the government. Japans industrial growth witnessed a rapid upswing under the Zaibatsu system. Buoyed by it success at home, the Japanese government forced the Zaibatsu system in Korea when it colonized the country (Shim & leeward, 2008, pg 49).The Zaibatsu enjoyed complete domination with Mitsui, Sumitomo and Mitsubishi, enjoying as much as 28% of the assets in Japanese companies by 1929. Just when the World War II was about to finish the Zaibatsu had 22.9% of the Japanese company stocks. Thus a handful of Japanese families had control over a vast majority of the Japanese enterprises under the Zaibatsu system. The structure of the Zaibatsu changed very quickly and soon on that point was intense diversification. For instance the single Mitsubishi Corporation rapidly diversified its business in to mining, shipping, insurance, trading, etc in a very short period of time and soon transformed into a ho lding company that was at the top of the Pyramid controlling a range of individual yet consort businesses. The Iwasaki family owned and controlled the entire business network of Mitsubishi (capital of Nebraska & Shimotani, 2009).KeiretsuKeiretsu represents a wad of enterprises that are linked to each other by way of cross shareholdings and invidious trading practices creating mutual interests in the business progress. Keiretsu are basically carve up into two main types namely Vertical keiretsu and plain keiretsu. However in that respect are also other keiretsu much(prenominal) as the distribution keiretsu that resuscitate to the distribution networks of big manufacturers. For instance the distribution networks of Matsushita, Fuji Photo Film, etc lie with under the distribution Keiretsu (Shimotani, 1995). Keiretsu emerged as a protective response to the dissolution and distribution of the largely family owned stocks of the Zaibatsu. When hostile companies were taking over th e zaibatsu firms the three main Zaibatsu leaders convened and arranged a solution of cross shareholding and preferential trading policies that enabled them to retain the overall control of the enterprises among themselves. For instance the Mitsui, Sumitomo and Mitsubishi zaibatsu formed this strategical pact of cross shareholdings to maintain their stronghold in the business. This is how the Keiretsu emerged from the Zaibatsu. Soon by the 1960s a few big financial institutions in Japan such as Dai-Ichi Kangyo, Fuji and Sanwa joined with the Mitsubishi, Sumitomo and Mitsui to constitute what was popularly known as the sixer horizontal Keiretsu (Lincoln & Shimotani, 2009). Periodic meetings between the presi sugars council (shacho-kai) members and executive win overs and cross share holdings formed the glue between these six Keiretsu. The horizontal Keiretsu is centered around a large curse.On the other hand, the plumb Keiretsu are the large manufacturing companies and supply ch ain companies, the distributors etc. una corresponding the Horizontal Keiretsu at that place is no presidents council in the vertical Keiretsu but the groups of providers of a manufacturing firm represent that role (Miwa and Ramsayer, 2006). Similar to the horizontal Keiretsu, the firms in the vertical keiretsu are also linked together by share holdings across firms and preferential business policies. In vertical Keiretsu there is improved knowledge sharing by way of business transfers including convince of experts and technical staff members across the vertical network. Overall, vertical Keiretsu promotes improved cohesion among the network firms. In fact, the increased dependence of main firms on the supplier firms in the vertical Keiretsu even lead to large scale investments by these ancillary Japanese firms in US following the footsteps of the Japanese car manufacturing firms setting up their FDI in that Country (Banerji & Sambharya ,1996). In technology intense industrie s of Japan vertical Keiretsu has greatly improved their international competitiveness by facilitating rapid knowledge sharing across the partnership firms. Empirical studies that deliberate the effects of such knowledge sharing across the firms in the vertical Keiretsu efflorescely suggest positive productive gains (Branstetter, 2000). One of the important advantages of the vertical keiretsu is the improved coordination between the suppliers and the assemblers. In the keiretsu automotive industries the suppliers receive plenty of book in products manufacturing , processing and people way. This is distinctly different from the US overture where the suppliers and the assembly line operate entirely independently. This model of operation facilitates both(prenominal) the parties as it helps to reduce the overall pretend for either party. (Lincoln & Shimotani, 2009) Thus the Keiretsu improved knowledge transfer among the networked firms, improved productivity, reduced risk for the firms and gave the Japanese companies go along advantage in the international market. what is more, Gerlach (2004), also notes that the Keiretsus were particularly important out-of-pocket to their one-set principle and networking. For instance, synergies were achieved in input and output, especially in the case of manufacturing. centralise systems and departments were utilize in conducting basic support operations, which helped all subsidiaries in exist savings (Lincoln & Shimotani, 2009). Also, profit-trapping mechanisms were used in place, by distributing them effectively through subsidiaries (Lincoln & Shimotani, 2009). extend shareholdings were also particularly important as it helped avoid takeovers, encouraged risk taking amongst companies, and had a long term outlook on strategy (Sturgeon, 2006). One of the important examples of the vertical Keiretsu is the Toyota group. In fact, Toyota has a unique quality of being both a horizontal keiretsu as well as a vertical ke iretsu. They key difference is that the massive size of the Toyota organization makes it possible to exist without being controlled by a central bank as is the case with horizontal keiretsu. Toyota with more than $72 billion in annual revenue has the financial might to stand for itself without the dependence of any major funding source. However, it is associated with the Mitsui group horizontally. Toyota is also widely diversified like a horizontal keiretsu company with its firms representing industries as varied as realistic estate, computer development, aircraft development, nonlife insurance, etc.The disintegration of the Keiretsu (Why keiretsu failed?)The keiretsu system started to decline slowly by the early nineties and one study by Gerlach (2004) that analyzed the cluster networking pattern of 257 Japanese organizations between 1978 and 1998 found clear evidence indicating this shift away from the Keiretsu. Analysis of cross shareholdings get ahead confirmed the decline of the keiretsu structure (Lincoln & Shimotani, 2009). By the late nineties many major banks that were previously the core of the Horizontal keiretsu had already sold false major portions of their shares to international financial institutions (Ahmadjian and Robinson, 2001). Several Bank jointures further shook the keiretsu structure. Starting with the Mitsui and Taiyo-Kobe Bank merger in 1990 to the 1998 merger of Industrial Bank of Japan, Fuji and Dai-ichi Kangyo bank the largescale mergers of Japanese financial institutions led to consolidation of the tie in keiretsu firms (Lincoln & Shimotani, 2009).Globalization and technological changes further led to the withering of the Keiretsu. The numbers of board of directors were reduced and many foreign personals likewisek up the position. International investors further demanded the selling off of the stocks in supplier firms and other affiliate firms. Furthermore, the global shift towards modular production system and the production efficiency that it gave rise to, along with a degree of independence between the firms that are involved, kind of eroded the production line advantages that Japanese firms specialized in mass production under the keiretsu system had enjoyed for a long period. The growth of information technology and the adaptation of computer model technologies in production testing and experimentation and swift data exchange between the firms reduced the need for physical communication (which was key in Keiretsu) and drastically improved value chain management.(Sturgeon, 2006)Modular production is propelled by ease of systems integration facilitated by information technology. By the 1990s modular production system was already in place in the US electronic industry with its contract manufacturers spread across the globe. While the American firms capitalized on the internet enabled modular production systems and dominated the electronics industry and related computer hardware industry, Japanese el ectronics industry was still sticking to the components convinced(p) products strategy. Cisco systems for instance enjoyed total domination in the network routers market enjoying as much as 80% of the market share part simply outsourcing its device production to contracted producers such as Solectron and Flextronics. a good deal the production centers are located in low cost regions such as China giving a distinct advantage for the modular production strategy. This contrast between the modular production strategies of the American firms and the in house integrated production system of the Japanese keiretsu firms gave a clear advantage to the American firms. In other words, the Japanese keiretsu firms could not underwrite the mega competition from the American firms which specialize in single core functions or narrow core competencies. The following figure 1 illust range the loss suffered by the Japanese keiretsu electronic industries in the early years of the new millennium. (St urgeon, 2006) other factor that accompanied global trade is the fluctuation of the exchange rates and its influence on the profit margin. Furthermore, the expansion into international markets and the associated transportation be motivated many of Japans manufacturing firms to move their production facilities overseas as a cost effective solution. Though some suppliers too moved and invested in these new countries, in most cases the central firms such as Toyota started building trust and relationships with the local suppliers. Furthermore, changes in Japanese economic reforms including the Tax policies did not tolerate risk sharing measures as they used to before which clearly undermined one of the key Keiretsu principles.ConclusionThe Large capitalist and mostly single family based zaibatsu companies flourished during the early twentieth century creating industrial monopolies that were closely controlled by the government. Zaibatsu led to what is known as a static system as most of the stocks are retained by the family that controls the business. Furthermore Zaibatsu promoted weak competition leading to what is known as cordial oligopoly.) Keiretsu on the other hand with its cross stockholdings is more dynamic and provided a more competitive business economy that continued to drive the Japanese economy during the post war period. The high cohesion that existed between the fighting(a) firms in the vertical keiretsu resulted in production and operational efficiency that gave Japanese manufacturers significant advantages in international markets. However, the Keiretsu principles of preferential business affected foreign companies from entering the Japanese markets.Globalization and increasing pressures from international organizations to sell off stocks in affiliated firms affected the cohesion that previously existed between the participating firms in the keiretsu network. Furthermore, the successful integration and mass production strategies of the keiretsu networks that helped Japanese manufacturing firms flourish were soon affected by the shift in global production strategies. Particularly, the concept of modular production where product design could be dislocated from its manufacture and the shift towards outsourcing in the westerly world created a dent in the Japanese manufacturing sector which was still stuck with the in house production policies. The impact of information technology and the internet in particular enabled the western countries implement modular production strategies and improved value chain management with setting up of contracted production centers across the globe. The japans keiretsu firms struggled to fight the American companies that specialized in single core functions leading to what is known as the mega competition. These fundamental shifts in organizational structure and strategies in the West nurture made the Keiretsu networks unsuitable under modern globally competitive and technologically advanced market conditions. There is definitely a shift towards a more western centric business organization.Bibliography Ahmadjian, Christina L and Patricia Robinson. (2001). Safety in Numbers Downsizing and the New Political Economy of Structural adaption and Globalization, New York M.E. Sharpe. Jae Seung Shim & Moosung lee, (2008), The Korean Economic System, Ashgate Publishing Ltd. England. James R Lincoln & Mashiro Shimotani, (2009), Institute for Research on Labor and Employment, Working Paper series, online University of California, viewed bobble 9th 2012, Katharina Niciejewska, (2007) The Influence of Social networks in Japanese business. Keiretsu as a Japanese Network. Auflage , Germany. Kunal Banerji PhD & Rakesh B Sambharya, (1996), Vertical Keiretsu and international market entry The case of the Japanese automobile ancillary industry, Journal of international business studies. Vol 27, No 1. 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