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Keiretsu are important for understanding the openness, or otherwise, of Japan's innovation system and MOT, corporate specialization, and boundary management. This chapter draws on a series of studies which portray keiretsu ties as both a cause and a consequence of innovation. They foster organizational learning and innovation, and they grow through strategies which allow spin-offs to commercialize core-company R&D. Innovation strategies can cause the ties to strengthen (as in the case of Matsushita), or weaken or become strained (Toyota-Denso). A quantitative study finds that keiretsu ties remained influential for non-R&D activities in the 1990s, while R&D relations became more strategic and less influenced by ‘legacy relations’.

This chapter describes the recent changes in Japanese keiretsu. Japan’s home-grown banking crisis began in the early 1990s, even before the Asian Crisis, when the stock market and real estate markets declined dramatically after the burst of the asset bubble in the late 1980s. Several banks went bankrupt and some high-profile inter-group bank mergers occurred. The tightening of requirements for consolidated accounting also made it harder for firms to manage their earnings by allocating gains and losses among group firms. Moreover, increased foreign ownership helped loosen inter-firm ties between keiretsu firms. This chapter examines the ownership and director ties of keiretsu firms to find out whether the keiretsu form was disrupted due to this series of events. The conclusion is that, although some peripheral relationships have been disrupted, the relationships among core firms have remained robust despite these changes.

As the ownership structure of Japanese corporations has changed dramatically during the 1990s, this chapter examines the causes and consequences of the decline in cross-shareholding. Using detailed and comprehensive data on ownership structure, including data on individual cross-shareholding relationships and other variables (Tobin's q) developed by the Nissai Life Insurance Research Institute and Waseda University, the chapter highlights the determinants of the choice between holding or selling shares for both banks and firms. Profitable firms with easy access to capital markets and a high level of foreign ownership prior to the banking crisis tended to unwind cross-shareholdings, while low-profit firms which had difficulty accessing capital markets and low foreign ownership tended to keep cross-shareholding with banks. High institutional shareholding and, surprisingly, block shareholding have had positive effects on firms' performance, while bank ownership has had consistently negative effects on firm performance. The result has been a growing diversity of ownership patterns among Japanese firms.

This chapter examines the restructuring of Japanese business groups during the 1990s. Using the Basic Survey of Business Structure and Activity, the chapter analyses the business portfolio of Japanese firms from the perspective of the group structure of parent and affiliate. While previous studies have examined the net shift in diversification or specialization of business, the chapter also adopts an original approach by looking at the actual flow of entry and exit from business segments. The analysis demonstrates that Japanese business groups engaged in a high level of restructuring during the 1990s, and a growing preference to separate businesses into subsidiaries and affiliated firms rather than managing them in house. Although Japanese firms have no trend toward greater diversification or greater focus on aggregate, entry and exit are important complementary strategies that improve firms.

This chapter focuses on Japan's Anti-Monopoly Law. Topics discussed include the historical background of the law, an outline of the law, private monopolization, prevention of excessive concentration of economic power, unfair trade practices, problems of keiretsu (companies linked together by continuous business relations), application of the Anti-Monopoly Law on international transactions, and procedures and sanctions.

This chapter analyzes the Japanese financial model. After outlining the main features of the Japanese financial system and its differences from the German system, it discusses the role and importance of universal banks in Japan. In particular, it analyzes the concept of the main bank, its special relationships with non-financial companies, within business groups known as ‘keiretsu’, and their role within the framework of a financial system in which financial markets will play an increasingly important role.

This introductory chapter discusses the theme of this volume which is about keiretsu, post-war Japanese insular business alliances. This volume argues that keiretsu is nothing more than an urban legend propagated by Marxist scholars in the 1950s. It also debunks other related myths about the Japanese business world including zaibatsu, which explains government guidance and maintenance of special arrangement with main bank.

This chapter presents an overview of market capitalism and the business sector in Japan. It explores the network of alliances among the major corporations that make up the Japanese economy, and provides a schematic representation of strategic alliances and intermarket keiretsu. The chapter also suggests that the proliferation of complex new forms of strategic alliances elsewhere has raised the issue of how different Japanese patterns of intercorporate relations really are. The analysis indicates that intercorporate alliance structures are a core feature of Japanese market capitalism and that they also represent a form of rational economic organization.

This chapter discusses the structure and form of the Japanese keiretsu. It describes Japan's business groupings, including the creation of higher-level executive councils, the structuring of exchange networks, and the promotion of groupwide industrial and public relations projects. The analysis indicates systematic and continuing patterns of preferential business relationships based on keiretsu affiliation.

This chapter analyzes the overall patterns of affiliation and alliance formation in the Japanese economy. It examines the processes of group expansion and the evolution of group affiliations over time, commonalities among keiretsu and independent firms and factors associated with group membership. The chapter describes the three key features of the alliance formation of Japanese businesses. These include the continually changing market opportunities that actors seek to appropriate and the considerable difference between actors' network positions and resulting market power.

In the modern banking literature, scholars who write about Japan focus on the concept of a ‘main bank’: the notion that all large Japanese firms maintain a specially close relationship with one bank that performs multiple roles. That notion, however, constitutes but the most recent iteration of a myth that has thrived for nearly a half-century: the notion that large Japanese firms organise themselves around a few key banks as keiretsu corporate groups. And this myth, in turn, constitutes part of a larger tale that places Japanese firms within a non-market, government-dominated hothouse environment. This chapter attempts to unravel these inter-related urban legends. Part II explains the role the government has (and has not) played in the Japanese economy. It then discusses the putative keiretsu corporate groups and ‘main bank’ relationships. All three of these urban legends share a common intellectual ancestry that traces its roots to the peculiar politics of the post-war Japanese and American universities. Accordingly, Part III closes by telling that intellectual history.

Extensive research has been conducted that seeks to explain the emergence of networks based on exchange and dependency mechanisms. Social exchange theory, originally developed by Romans (1950, 1974) and Blau (1964), seeks to explain human action by a calculus of exchange of material or information resources. In its original formulation, social exchange theory attempted to explain the likelihood of a dyadic relationship based on the supply and demand of resources that each member of the dyad had to offer. Emerson (1962, 1972a, 1972b) extended this original formulation beyond the dyad, arguing that in order to examine the potential of exchange and power-dependence relationships, it was critical to examine the larger network within which the dyad was embedded. Since then several scholars have developed this perspective into what is now commonly referred to as network exchange theory (Bienenstock & Bonacich, 1992, 1997; Cook, 1977, 1982; Cook & Whitmeyer, 1992; Cook & Yamagishi, 1992; Markovsky, Wilier, & Patton, 1988; Skvoretz & Wilier, 1993; Wilier & Skvortez, 1997; Yamagishi, Gillmore, & Cook, 1988). Network exchange theory posits that the bargaining power of individuals is a function of the extent to which they are vulnerable to exclusion from communication and other exchanges within the network. The argument is that individuals forge network links on the basis of their analysis of the relative costs and returns in exchanging their investments with others in the network. This is in contrast with theories of self-interest where actors seek to maximize their individual investments independent of its exchange value. Likewise, individuals maintain links based on the frequency, the uncertainty, and the continuing investments to sustain the interaction. Location in the network may confer on some people an advantage over others in engaging in exchange relationships. Aldrich (1982) notes that this argument is at the core of several theories dealing with social exchange as well as resource dependence theories. Within organizations, network researchers have proposed a social exchange mechanism for the study of (1) power, (2) leadership, and (3) trust and ethical behavior. At the interorganizational level, researchers have (1) tested resource dependence theory, (2) examined the composition of corporate elites and interlocking board of directorates, and (3) sought to explain the creation, maintenance, and dissolution of interorganizational links.

This chapter evaluates the concept of Japanese insular business alliances called keiretsu. It analyzes whether information about keiretsu matches business data from Japan and examines the so-called vertical keiretsu. The analysis reveals that there are no keiretsu and never have been any. At root, the keiretsu instead represent a fable about the mythical vision of the Japanese economy.

This chapter examines the concept of the zaibatsu, pre-World War 2 Japanese business conglomerates. It suggests that the zaibatsu did exist but were not like the groups that academics described. The analysis also reveals that the zaibatsu acquired their intellectual prominence because they happened to be thriving when muckraking journalists in the 1920s and 1930s came looking for someone to blame for the depression. This chapter also trace the ties between zaibatsu and the fable of the keiretsu.

This chapter sums up the key findings of this study about some of the myths about the Japanese economy. It confirms that the fables about Japanese bureaucrats, keiretsu, main banks, and systematically misgoverned firms are just fables with no factual basis or data to support them. This chapter also provides an analysis of the possible causes of the economic crisis in Japan in the 1990s.