Japanese corporate structure – Toyota and the Keiretsu system

The Toyota Group (Keiretsu)

A keiretsu is a collection of affiliated Japanese companies centered on a bank that lends money to member companies and holds an equity interest in those companies. By joining forces, these companies are able to reduce costs and risk, make communication easier, ensure trust and reliability, and provide protection from external competition. There are two types of keiretsu, horizontal and vertical. Horizontal, cross-market keiretsu are diversified networks of large corporations. These included the three aforementioned descendants of the pre-WWII zaibatsu. Vertical manufacturing and distribution keiretsu are asymmetric networks in which small company sectors are dominated by large sectors.

The Toyota group is considered the largest of the vertically integrated keiretsu groups. The United States and most Western countries viewed keiretsu negatively, interpreting such a business scheme as that of a prohibited monopoly or cartel.

The Toyota Group is an excellent example of a highly successful, complex and prominent keiretsu in Japan. It is a member of the Mitsui Group, which is one of its main banks but operates very independently of the bank. For the past few decades, Toyota has topped the list in terms of sales and profits both in the United States and abroad. The parent company generates an average annual turnover of 72 billion US dollars with 72,000 employees. That equates to $1 million in sales per employee, about six times that of competitor General Motors. Toyota has been the best-selling car in Japan for over 24 years. This alone shows the punch and power of Japanese keiretsu.

This company is the largest industrial combine in Japan and one of the largest keiretsu in the country. Another amazing fact is that Toyota is much more than an automaker. In fact, Toyota is a major participant in three telecom companies; it is a major investor in a computer systems development company; and she owns shares in an insurance company specializing in motor insurance. In addition, Toyota operates four real estate companies, two finance companies and is currently exploring opportunities in the aerospace industry.

Due to the importance of keiretsu in post-war Japan, only those employees who worked in core sectors of companies benefited. Those forced to work in small businesses suffered from low wages, restricted job mobility and job instability. A lot can be said for the Keiretsu system, which, as seen in the Toyota Group case study, can bring a lot of power and success.