It is widely accepted that the formation of enterprise groups after the Second World War founded a notable characteristic of the 'Japanese management system'. The report of the US-Japanese Structural Impediments Initiative Talks, published in 1990, focused on enterprise groups because they represented a typical example of Japan's closed markets and a cause of growing trade imbalance. The purpose of these groups and the nature of their contribution to industrial organisational capability is rooted in the period of their formation, the 1950s. During a time of uncertainty and forced reorganisation, Japanese companies established relationships with other firms which enhanced stability and protected their immediate futures. Interlocking share ownership brought a sense of security, allowed managers to control their own enterprises, and encouraged firms to think in terms of long-term growth rather than short-term profits. Formal inter-firm relationships enabled a capital-starved economy to finance joint ventures, which often required the importation of expensive foreign technology. Information could be more freely shared amongst mutually dependent allies, and transaction costs between firms were reduced. The objectives and advantages of inter-firm groupings altered over time, and these changes reflected developments within the Japanese economy and in the commercial and organisational needs of companies. The strengths of companies are determined by internal organisation, but also by external connections with suppliers, buyers, banks, government, and other firms and these can take the place of neo-classical market mechanisms. These institutional arrangements, both formal and informal, have been a notable aspect of the Japanese industrial system; something distinct from Anglo-American economies and one possible cause of competitive advantage and differential growth rates.
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THE ROLE OF ENTERPRISE GROUPS
The word keiretsu generally refers to kigyo keiretsu, which is a vertical combination with one large company and a number of subsidiaries, and the Matsushita and Toyota groups are classic examples of this type. Enterprise groups, however, are called kigyo shudan, a horizontal combination amongst large companies. We will investigate the latter by looking at the six largest kigyo shudan, namely Mitsui, Mitsubishi, Sumitomo, Fuji Bank, Sanwa Bank, and Daiichi Kangyo Bank (or DKB). Each of these is a network of companies and they are all guided by a presidents' meeting. In 1991, these six groups - exclusive of their financial and insurance businesses - accounted for 13.0 per cent of Japan's total assets, 14.3 per cent of sales, and 15.2 per cent of net profits.(1) In other words, they comprised one-seventh of the Japanese economy. Why these enterprise groups were formed, what kind of functions they perform, and how they influenced decision-making in member companies are all questions which are central to our understanding of the Japanese economy and its business organisation.
It was in the middle of the 1950s, when the Japanese economy began to grow rapidly, that the formation of enterprise groups attracted attention. Mitsubishi Shoji (Mitsubishi Trading)(2) was reintegrated in 1954, Mitsui Bussan (Mitsui Trading)(3) in 1959, and the three Mitsubishi Jukos (Mitsubishi Heavy Industries) - Shin Mitsubishi Jukogyo, Mitsubishi Nippon Jukogyo, and Mitsubishi Zosen - were merged in 1964. These trends had wide-scale implications at home and abroad. At the time, they were strongly regarded as re-emerged zaibatsu, but they were different in many ways. The new kigyo shudan lacked parent corporations operating as holding companies, the …
