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The Keiretsu Comeback

Redefining Competitiveness: How Collaborative Networks Can Disrupt Corporate Monopolies

In the book, Assets in Common, I write about the history and inner workings of how certain business groups in Japan formed loose alliances by bringing different assets together to serve their distributed network, without operating under one legal corporate structure. These loose alliances are known as keiretsu.

What is a Keiretsu?

A keiretsu is a business network of companies with extensive cross-shareholding and interlocking business relationships. In a keiretsu, businesses own equity stakes in each other, share talent and financial resources, and work closely together towards mutual market success. Major Japanese corporate groups like Mitsubishi, Mitsui, and Sumitomo are examples of keiretsu. Typically, they are formed as a consortium of diversified business types that support each other through interconnections between banks and trading companies, as well as through cross-shareholdings.

Why did it work in Japan?

The keiretsu corporate form was the successor of long standing family holding companies in Japan before World War II (known as zaibatsus). The ties of cross-shareholding, knowledge resources, and affiliated bank borrowings enabled Japanese companies to rapidly rebuild and grow after World War II. By pooling capital, labor, and expertise across interlocked firms, the keiretsu system allowed for allocation of resources and risk sharing which, for many years, shielded these companies from the abrasive pressures of the global capital markets. This collaborative approach, combined with cross-holdings protecting members from hostile takeovers, allowed for long-term planning, where many of these business groups can now attest to lasting over hundreds of years because they share a common business ancestor. The model was well-suited to Japan's culture, which carries a propensity towards group loyalty, collective wellbeing and honoring ancestors.

One of the quotes we include in the book is from a predecessor of the Sumitomo Group, summarizes why this idea of interlocking business bonding was so deeply embedded in the way of doing business:

“It goes without saying that Sumitomo’s businesses are in a family relationship, sharing a common “parent” from which they have separated. As such, the businesses are siblings joined by an inseparable bond. Therefore, although technically the businesses may be independently managed, I want you to form a spiritual alliance so that, come what may, you never lose your sense of brotherhood.” - Shunnosuke Furuta, retired Director-General of Sumitomo Group to the group presidents when the Allied Occupation forced the dissolution of the zaibatsu.

Mechanisms for Model Replication

One of the key mechanisms that enables the keiretsu approach is fostering a culture of cooperation between companies through repeated business dealings and relationships. As firms work together more, an informal spirit of prioritizing the collective wellbeing of the network can develop. Rather than pure competition, there is more appetite for companies to aid each other's success when they become reliant partners.

Moreover, as companies participating in a keiretsu reap the benefits of diversified operations, it creates opportunities for insular market "pools" and "closed circuit" flows of capital, resources, and labor within the network itself. This breeds a sense of collective identity that employees and member firms can opt into. The circular, intersecting relationships foster a myriad of economic and social circuits tailored to the business opportunities unique to the network of relationships among the firms. Investing in common member success perpetuates the stability and growth of the whole group.

As exemplified by how fortified this model of corporate organizing was in Japan, the model lends itself to a regional approach, allowing firms to connect and organize based on geographic closeness, shared culture, and commitment to uplifting a specific place through business activity. The keiretsu replicates the ability for businesses to band together in service of their community's interests beyond just maximizing profits for a few shareholders.

What could it look like in the United States?

While America traditionally favors a more individualistic, free market approach, the growing trends toward economic concentration and monopolistic consolidation suggests there may be a place for keiretsu-inspired cooperation between enterprises. Imagine groups of businesses in different but complementary industries pooling resources among small and medium-sized enterprises under a unified purpose and strategy. The loose affiliation and network approach could consist of a technology company, a manufacturing firm, a finance institution, a real estate developer, and companies spanning other sectors – all with cross-shareholdings and closely coordinated activities.

Rather than companies simply competing head-to-head or taking the corporate conglomerate route, the keiretsu model suggests that a more flexible, diversified, and collaborative structure is possible. With the right cultural adaptation promoting longer-term outlooks over short-term gains, the keiretsu approach could allow for the resurgence of diversified small businesses banding together for more resiliency and efficiency in a way that extends the life of these firms.

How do we get started?

Companies don't need to start from scratch – they could begin by strengthening existing partnerships and relationships. Businesses that already work closely together in a supply chain, for example, could cross-purchase equity stakes in each other to formalize cooperation. Or a loose alliance could be initiated by a shared services firm or special purpose holding company used to establish structures for shared decision-making, employee exchanges, joint ventures, and mutual profit-sharing over time.

The key is fostering a mindset of shared purpose and economic prosperity rather than pure competition. The perception of these alliances would need to be carefully navigated to honor U.S. antitrust laws, but partial cross-ownership and collaboration is still possible. If groups of diverse companies sign onto the keiretsu principles of mutual benefit and long-term commitments to partners, we may see the rise of new alliances in industries ranging from tech to manufacturing to real estate and beyond.

If you are intrigued by the keiretsu model and want to learn more, pick up a copy of Assets in Common to dive deeper and explore other findings with us.


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