JAPAN’S CORPORATE CULTURE HAS INDEED CHANGED IN THE 21ST CENTURY
Large Japanese corporations once upon a time were considered too big to fail. Until the restructuring of several of the largest Japanese banks at the turn of the century, commerce in Japan was held together by “keiretsu” companies. In crude terms about six keiretsu banks; Mitsubishi, Mitsui, Sumitomo, Fuyo, Mizuho and Bank of Tokyo-Mitsubishi UFJ are interlinked through share purchases to form horizontally-integrated alliances across many industries. Where possible, keiretsu companies would also supply one another, making alliances vertically integrated as well. The sole purpose was to make foreign takeovers impossible (because of cross shareholdings) but moreover it was promoted and sponsored by central government as a way to create robust corporations that withstand any trade pressure brought about by intensified world competition.
The grandest example of the success of Keiretsu how the Japanese auto and electronic industries have been able is less than forty years to grow and withstand competition to globally dominate these sectors. When say the old General Motors needed some funding, it would have to go to market and depending upon its credit rating, it would pay market or higher than market interest rates. By comparison, Mazda’s CEO, part of the Sumitomo keiretsu, would make a phone call to the CEO of Sumitomo and “Bob’s your uncle”, funding was immediately in place with a below market rate. With such low cost of money large Japanese corporations with such huge protective shields around them literally became too big to fail. At the turn of this century, with the rapid ascension of China as a source of cheap supply the lives of keiretsu companies began to change.
Firstly with Nissan, the keiretsu company bank was Mitsubishi and they elected to stop funding which resulted in the company in 1999 being saved by Renault who bought 40% of the company and literally took over the management. Soon after, some major banks were restructured and several disappeared, being absorbed into better capitalized competitors. With deflation taking root over the last ten years, the days when the good “old boys” could get together and sort out any problems with their keiretsu brethren, started to become numbered. Ever since the rapid rise in fuel prices, Japan Air Lines has been on the brink and until last week, it was thought that with its keiretsu support, bankruptcy would never be an option. To the surprise of the Japanese public and even the outside world, not even the government was interested in bailing JAL out so a company once considered “too big to fail” called in the liquidators.
It was the keiretsu philosophy which created Japan’s bubble economy and when that bubble burst nearly twenty years ago, it has taken all this time for Japan to enter the reality of the real world. China’s bubble is about to burst, but instead of private enterprise propping up the economy as was the case with Japan, the communist Chinese government can print as much money as it wants, but when it happens there, unlike Japan’s soft landing of sorts, “it is all over, Rover”, for the Chinese!
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