The monopoly is apparently a positive thing in the strange world of Asian economic models. Japan has its keiretsu, Korea has chaebol. Hong Kong likes to call them "investment holding trusts". China calls them "investment corporations". I recall Southeast Asia has another distinctive name for their massive corporate conglomerates. Anti-trust laws here are minimal.

The fun thing about any keiretsu (or its other Asian counterparts) is that they own the banks which supply them with funds and capital. Citicorp, one of the largest American banks, pales in comparison with the Japanese mega-banking institutions. The eight largest banks in the world are associated with various Asian keiretsu. Basically, their resources are practically unlimited, they easily crush smaller competition and takeover the rest, leaving Asia in the hands of a few gigantic megacorporations that produce anything from cars, office supplies and frozen food.

Notable keiretsu include Mitsubishi, Mitsui, Sanwa and Hyundai. Mitsubishi was the closest thing to Omnicorp in its heyday, making everything under the sun. Most of these corporations are currently in serious financial trouble, a bad hangover from the crash of 1997.

The keiretsu system was widely praised by the yuppies of the 80's as the next step in capitalist evolution, or hypercapitalism, but the anti-trust legislation held this trend in check. With the demise of the traditional Asian economic model in 1997, in the disastrous Asian Economic Crisis, these hotheads are forced to swallow their hasty words and reconsider the validity of a keiretsu based economy. Among many things, the seemingly endless flow of capital available to major keiretsu indicates that something is amiss.

I'm a conservative and a staunch capitalist, but I am no fan of the keiretsu system. Its dismantling in the past 5 years is testament to its shortfalls. American capitalism has proven itself to the most stable and beneficial economic system in the world.

A keiretsu is a loosely-coupled federation of corporations, usually in related industries. The term originated in Japan, where keiretsus are common. It differs from a conglomerate (more common in the West) in that rather than all members being subsidiaries of a parent holding company, keiretsu members are peers but often own significant amounts of each other's stock and have many board members in common. A keiretsu also differs from a consortium or an association, becuase the primary purpose of a keiretsu is not to share information or agree industry standards (although it may do so), but to share purchasing and distribution functions. Keiretsu members are independent companies in their own right: the only strategy they have in common is to prefer to do business with other keiretsu members, both when buying and when selling.

Keiretsu members in the same industry participate in "coopetition", a combination of competition and cooperation. This is because there are things that businesses need to do, but from which they cannot derive a competitive advantage. An example of this would be that two advertising agencies can compete to win business, but also pool their purchasing power to buy office furniture and IT equipment. This works even better if there is an office supply company in the keiretsu: it has a guaranteed stream of business and so can offer reduced prices on its products to other keiretsu members. This is typical of Omnicom and DAS. Most keiretsus would benefit from a property developer amongst their clique. Many keiretsus contain one or more banks for similar reasons, and indeed keiretsus are often formed with investment banks or venture capitalists at the center. One of the most powerful of these during the recent NASDAQ boom was formed by venture capitalists Kleiner, Perkins, Caulfield & Byers - whose keiretsu includes Netscape, AOL, Sun, Google, Novell and law firm Wilson Sosini. Observers note the sale of Netscape to AOL and Sun when it was in trouble, and the career of former Sun employee and Novell CEO Eric Schmidt, now at Google. Companies as diverse as AT&T, DuPont, Lucent, NCR and UPS cooperate for recruiting and career management: if a talented employee leaves, it makes sense to try keep them within the corporate family. Other keiretsu relationships are manufacturer-supplier, creditor-debtor and producer-distributor.

Keiretsu members can cooperate to offer customers a seamless experience, and through cross marketing and loyalty programmes, one keiretsu member will try to ensure that when a customer requires a product or service that it does not provide, they will be able to get it from another keiretsu member at a good price. Some good examples of this are the well-integrated financial services and travel organizations, such as Star Alliance, and the American Express partner programme. Another example is the Virgin group of companies. They operate in a diverse range of industries, such as travel (Virgin Atlantic, Virgin Trains), retail (Virgin Megastore, Virgin Cars, etc) and entertainment, but though loyalty schemes lure customers who have bought one Virgin product to consider Virgin for unrelated purchases. The Mitsubishi keiretsu includes auto manufacturing, banking, shipbuilding and electronics companies. It is however unusual for keiretsus to explicitly acknowledge their existance, and most keiretsu members prefer to retain their individual brands and identities.

Keiretsus are often critized by non-members as cartels; there is some merit to this argument, but generally keiretsus are vertically rather than horizontally integrated, and compete with each other, in such a way that no keiretsu can dominate a market and fix prices. It is possible that the relationship between Enron or WorldCom and their bankers could be considered evidence of a de-facto keiretsu, depending on whether it was the action of a few individuals or a decision made by each organization's management.

The fact that keiretsu membership must be in the best interest of all members, with an internal market, means that forming or joining keiretsu is a powerful strategy for an organization that already has a clear idea of its goals and requirements.

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