A keiretsu (系列, keiretsu lit. system or series) ("ei" pronounced as in "weigh") is a set of companies with interlocking business relationships and shareholdings. It is a type of business group.

Keiretsu in Japan

The prototypical keiretsu are those which appeared in Japan during the "economic miracle" following World War II. Before Japan's surrender, Japanese industry was controlled by large conglomerates called zaibatsu. The Allies dismantled the zaibatsu in the late 1940s, but the companies formed from the dismantling of the zaibatsu re-interlinked through share purchases to form horizontally-integrated alliances across many industries. Where possible, keiretsu companies would also supply one another, making the alliances vertically integrated to some extent.

The major keiretsu were each centred around one bank, which lent money to the keiretsu's member companies and held equity positions in the companies. Each central bank had great control over the companies in the keiretsu and acted as a monitoring entity and as an emergency bail-out entity. One effect of this structure was to minimize the presence of hostile takeovers in Japan, because no entities could challenge the power of the banks.

There are two types of keiretsu: vertical and horizontal. Vertical keiretsu illustrates the organization and relationships within a company, while a horizontal keiretsu shows relationships between entities, normally centered around a bank and trading company.

Although the divisions between them have blurred in recent years, there are six major postwar keiretsu:

Name	Bank	Major group companies
Mitsubishi	Mitsubishi Bank (until 1996) Bank of Tokyo-Mitsubishi (1996–2005) Bank of Tokyo-Mitsubishi UFJ (2006– )	Mitsubishi Corporation, Kirin Brewery, Mitsubishi Electric, Mitsubishi Fuso, Mitsubishi Motors, Nippon Yusen, Nippon Oil, Tokio Marine and Fire Insurance, Nikon
Mitsui	Mitsui Bank (until 1990) Sakura Bank (1990–2001) Sumitomo Mitsui Bank (2001– )	Fuji Photo Film, Mitsui Real Estate, Mitsukoshi, Suntory, Toshiba, Toyota
Sumitomo	Sumitomo Bank (until 2001) Sumitomo Mitsui Bank (2001– )	Asahi Breweries, Hanshin Railway, Keihan Railway, Mazda, Nankai Railway, NEC, Sumitomo Real Estate
Fuyo	Fuji Bank (until 2000) Mizuho Bank (2000– )	Canon, Hitachi, Marubeni, Matsuya, Nissan, Ricoh, Tobu Railway, Yamaha
Dai-Ichi Kangyo	Dai-Ichi Kangyo Bank (until 2000) Mizuho Bank (2000– )	Fujitsu, Hitachi, Isuzu, Itochu, Tokyo Electric Power
Sanwa ("Midorikai")	Sanwa Bank (until 2002) UFJ Bank (2002–2006) Bank of Tokyo-Mitsubishi UFJ (2006– )	Hankyu Railway, Keisei Railway, Kobe Steel, Konica Minolta, Kyocera, Orix, Shin-Maywa, Takashimaya, Toho

In addition to these mega-groupings, many companies formed smaller keiretsu. Nissan, Hitachi and their affiliates have had a longstanding keiretsu relationship dating to their prewar existence as part of the same zaibatsu; the Hankyu-Toho Group is an even closer relationship within a keiretsu.

The Japanese recession in the 1990s had profound effects on the keiretsu. Many of the largest banks were hit hard by bad loan portfolios and forced to merge or go out of business. This had the effect of blurring the lines between the keiretsu: Sumitomo Bank and Mitsui Bank, for instance, became Sumitomo Mitsui Banking Corporation in 2001, while Sanwa Bank (the banker for the Hankyu-Toho Group) became part of Bank of Tokyo-Mitsubishi UFJ. Additionally, many companies from outside the keiretsu system, such as Sony, began outperforming their counterparts within the system.

Generally, these causes gave rise to a strong notion in the business community that the old keiretsu system was not an effective business model, and led to an overall loosening of keiretsu alliances. While the keiretsu still exist, they are not as centralized or integrated as they were before the 1990s. This, in turn, has led to a growing corporate acquisition industry in Japan, as companies are no longer able to be easily "bailed out" by their banks, as well as rising derivative litigation by more independent shareholders.

Keiretsu outside Japan

The keiretsu model of Japan has not appeared outside Japan, but many non-Japanese businesses are described as keiretsu such as the Virgin Group (UK) and Tata Group (India). Airline alliances such as Oneworld and the Star Alliance have also been described as keiretsu. Generally, these groups exhibit more top-down management, centralized control or (in the case of airline alliances) looser equity ownership connections than do "true" keiretsu. Banks cited as being central to keiretsu-like systems include Deutsche Bank and the early years of JP Morgan and Mellon Financial in the United States. One economic group, the Colombian Grupo Empresarial Antioqueño, is often described as such.

The venture capital firm of Kleiner, Perkins, Caufield & Byers (KPCB), a major player in the dot com boom, describes its investment portfolio as a keiretsu. Like the Japanese keiretsu of the postwar period, KPCB has invested in independent companies covering a number of business sectors, and encouraged business connections between those companies, making its portfolio one of the closest analogues to a keiretsu outside Japan.

A form of keiretsu can also be found in the cross-shareholdings of the largest U.S. media companies—see Columbia Journalism Review's "Who Owns What" website.

There is a Keiretsu Forum in America, which describes itself as the largest network of angel investors in the world.

South Korean conglomerates, called chaebol, are often compared to keiretsu, but the chaebol conglomerations are much more similar to a Western conglomerate like General Electric or a pre-World War II zaibatsu.

Further reading

• Masahiko Aoki and Hugh Patrick, The Japanese Main Bank System (1994)
• Ronald Gilson and Mark Roe, "Understanding the Japanese Keiretsu," 102 Yale L.J. 871 (1993)
• Yoshiro Miwa and Mark Ramseyer, "The Fable of the Keiretsu," 11 J. Econ. & Mgmt. Strategy 169 (2002)
• Kenichi Miyashita & David Russell, "Keiretsu: inside the hidden Japanese conglomerates" McGraw-Hill (1995)