What is 'Keiretsu'

Keiretsu is Japanese term describing the current structure of major companies in Japan, which often results in a grouping of enterprises that take equity stakes in one another and sometimes collaborate and share projects.

Powerful families once ran many of Japan’s major industries. When the U.S. occupied Japan and rewrote the Japanese constitution after World War II, the U.S. government  busted up structures that put a few families in control, seeing them as both monopolistic and undemocratic. Keiretsus formed shortly thereafter, which involved a loose conglomeration of Japanese firms that collaborate and sometimes share the same name.

In Japan, keiretsus still represent major parts of the economy. For example, each of Japan's six car companies belongs to one of the big six keiretsus, as do each one of Japan's major electronics companies.


Keiretsus are distributors of goods around the world. Perhaps the largest and best-known is Mitsubishi, which once manufactured the A6M Zero fighter planes used in World War II. The Bank of Tokyo-Mitsubishi sits at the top of this current keiretsu. Mitsubishi Motors and Mitsubishi Trust and Banking also are part of the core group, followed by Meiji Mutual Life Insurance Company, a provider of insurance to all members of the keiretsu. Mitsubishi Shoji is the trading company for the Mitsubishi keiretsu.

While companies within the keiretsu operate in different industries, they support one another and operate as business partners in some areas.

For example, banks sometimes own a small percentage of their keiretsu members' stock and members own a portion of the bank's stock. This forms an interlocking relationship, especially if the member company borrows from the horizontal member bank. These interlocking relationships allow the bank to monitor borrowings, strengthen relationships, monitor customers and help with problems such as supplier networks.

This arrangement also limits competition within the keiretsu and prevents company takeovers by outsiders.

The Pros and Cons of Keiretsu

Keiretsus arguably result in natural synergies, lower costs and the sharing of information among customers, suppliers and employees. This typically leads to quicker investment decisions, for example.

However, critics believe that, partly because of their size, keiretsus can't adjust to market changes quickly enough for many of these investments to earn sufficient profits.

Also, some say the limited competition within the keiretsu leads to inefficient practices.

Moreover,  because executives from member companies with a bank at the center of a kieretsu have easy access capital, they might take on too much debt and utilize risky strategies that a company that depends on truly outside capital wouldn’t attempt.

  1. Group Banking

    Group banking is a bank plan that generally provides incentives ...
  2. Regulation L

    Regulation L prohibits certain types of interlocking management ...
  3. Accommodation Endorsement

    An accommodation endorsement is a written agreement from one ...
  4. Mutualization

    Mutualization is the process of changing a firm's business structure ...
  5. Central Bank

    The entity responsible for overseeing the monetary system for ...
  6. Price War

    Price war refers to a circumstance where rival companies continuously ...
Related Articles
  1. Investing

    How the Volkswagen and Mitsubishi Scandals Relate

    Mitsubishi Corp. admitted to cheating on fuel economy data. Will it face the same consequences as Volkswagen?
  2. Investing

    Japan ETFs: Will Mitsubishi and Toshiba Cause Contagion Risk? (MMTOF, TOSYY)

    Explore details about Mitsubishi's and Toshiba's scandals, and learn why some Japan ETFs may be affected by contagion risk from these companies.
  3. Investing

    Five ETFs To Cash In On Japan’s Rise

    With the election of Shinzo Abe and birth of “Abenomics”, things are looking up for Japan's exporting dependent nation. For investors, Japan may finally be awaking from its doldrums.
  4. Insights

    The Relationship Between Japanese And Chinese Economies

    China counts on Japan for its manufacturing savvy, while Japan needs China's market to help it grow out of an economic funk.
  5. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
  6. Investing

    Jumping for an Old Japan ETF

    This Japan ETF is topping U.S. stocks this year, but it has some drawbacks.
  7. Insights

    Toshiba Highlights the Need for Faster Corporate Reform in Japan

    There is no doubt that Japan is still a leader in technology and production excellence, but that edge is in danger of being squandered.
  8. Investing

    The 5 Largest Japan ETFs (EWJ, DXJ)

    Discover several of the largest Japan ETFs, as measured by assets under management, and learn about the investment exposure each provides.
  9. Financial Advisor

    Why Investors are Bailing on Japanese Stocks

    Foreign investors have pulled out of Japanese equities to the tune of $46 billion so far this year.
  10. Investing

    The Top 3 ETFs to Track the TOPIX for 2016 (JPXN, EWJ)

    FInd the best ETFs that investors can use to obtain exposure to Japanese equities by tracking one of the major Japanese equity market indexes in 2016.
  1. What are some examples of different corporate governance systems across the world?

    Read about the three major types of corporate governance systems: the Japanese model, the Anglo-Saxon model and the continental ... Read Answer >>
  2. What countries represent the largest portion of the global banking sector?

    Learn how four countries, China, the U.K., France and the U.S., exhibit the greatest influence over the global banking sector, ... Read Answer >>
  3. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
  4. What is the difference between a monopolistic market and perfect competition?

    Learn about monopolistic and perfectly competitive markets, what they are, and the main differences between perfect competition ... Read Answer >>
Hot Definitions
  1. Business Cycle

    The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles ...
  2. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  3. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  4. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  5. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  6. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
Trading Center