A keiretsu (Japanese: 系列, literally system, series, grouping of...

A keiretsu (Japanese: 系列, literally system, series, grouping of enterprises, order of succession) is a set of companies with interlocking business relationships and shareholdings. In the legal sense, it is a type of informal business group that are loosely organized alliances within the social world of Japan's business community.^[1] The keiretsu system predominated the Japanese economy for the second half of the 20th century, and, to a lesser extent,^[2] continues to do so in the early 21st century.

The members' companies own small portions of the shares in each other's companies, centered on a core bank; this system helps insulate each company from stock market fluctuations and takeover attempts, thus enabling long-term planning in projects. It is a key element of the manufacturing industry in Japan.

Vertical keiretsu[edit]

Vertical keiretsu (also known as industrial or distribution keiretsu) are used to link suppliers, manufacturers, and distributors of one industry. Banks have less influence on vertical keiretsu. Examples of this type include Toyota, Toshiba, and Nissan.^[7] One or more sub-companies, arranged in tiers of importance, are created to benefit the parent company. Major suppliers form the second tier beneath the parent, and smaller manufacturing companies make up the third and fourth tiers. Those at the highest levels are most profitable, and most insulated from fluctuations in the market.^[8]

Some vertical keiretsu may belong to one or another horizontal keiretsu.^[7] Some vertical keiretsu are family businesses, such as the Hitotsubashi/Shogakukan, Kodansha and APA groups. Studies have found these vertical keiretsus, particularly those that belong to the same horizontal keiretsu, are more likely to form alliances than the other types or even those companies where one or two have keiretsu affiliations.^[9] Vertical keiretsu is considered an effective and competitive organizational model in the car industry.