Srujana Asia

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ASIA AND GLOBAL ECONOMIES

SUBMITTED BY,

K. SRUJANA.

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TABLE OF CONTENTS

S. NO TOPIC PAGE NO

1 INTRODUCTION 3

2 INTRODUCTION ABOUT

FIYO, SANWA, DKB GROUPS 5

3 MANPOWER OF INDUSTRIAL GROUPS 6

4 MARKETING OF INDUSTRIAL GROUPS 8

5 MONEY/CAPITAL OF

INDUSTRIAL GROUPS 10

6 WORLD ISNT FLAT 11

7 REFERENCES 14

1. INTRODUCTION:

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JAPANESE KEIRETSU:

Keiretsu is a Japanese term which is nothing but a Group or it can also

be interpreted as alliance or partnership. The Japanese use an economic system

which is known as Keiretsu to organize the corporation into one cohesive

structure that is nothing but a group of companies are linked together through

sharing business, cross-shareholding and having mutual values and interests.

Keiretsu is nothing but Spider Web Strategy.

Classification of keiretsu:

(a) Zaibatsu (loosely related and strongly diversified, for instance Mitsubishi),

(b) Single production keiretsu based on a strong leading corporation, for instance

Hitachi,

(c) So called spin-off keiretsu formed as a result of the most innovative parts of

the core company becoming self-dependent, for instance Matsushita,

(d) Regional keiretsu formed by regional subsidiaries becoming self-dependent,

for instance NEC,

(e) Person-oriented keiretsu, networks of companies created by charismatic

owners, for instance Seibu, Softbank.

Keiretsu

Factor Ownership Cross-shareholding

Products Specialized

Finance In-group bank

Market Global sales

Technology Group development (incremental)

/ Innovative leaders

Source: based on P. Buckley (2005, p. 36)

Economic System (Keiretsu) is of 2 types they are:

Horizontal.

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Vertical.

HORIZONTAL KEIRETSU (or) FINANCIAL KEIRETSU:

Horizontal Keiretsu is nothing but a group of companies in differentindustries are organized around one of its commercial bank which provides

variety of financial services to the companies around it. The major groups in

horizontal keiretsu are known as Big Six. This Big Six include:

a) Mitsubishi.

b) Sanwa.

c) Dai-Ichi Kangyo.

d) Mitsui.

e) Fuyo.

f) Sumiotomo.

The industries in Horizontal Keiretsu are banking, manufacturing, steel,

insurance, trading, chemical and electric gas. These companies follow the One-Set Policy where the groups avoid the direct competition between the member

firms. This policy allowed the rapid cooperative development of the keiretsu.

VERTICAL KEIRETSU (or) INDUSTRIAL KEIRETSU:

Vertical Keiretsu emerges when corporate companies are linked together

through the intra group production activities and ownership of long term equity.

It is used for linking

a) Suppliers.

b) Manufacturers.

c) Distributors of one industry.

Example in Vertical Keiretsu:

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Toyota is a vertically integrated keiretsu group. Its success depended on

manufacturers of parts, real estate dealership, electronics suppliers, suppliers,

steel, employee for the production and plastic suppliers for cars and wholesalers.

Some companies in vertical keiretsu:

AUTOMOBILE INDUSTRY:

TOYOTA GROUP.

NISSAN GROUP.

HONDA GROUP.

DAIHATSU MOTORS.

ISUZU.

ELECTRONICS:

HITACHI.

TOSHIBA.

SANYO.

MATSUSHITA.

SONY.

2. FIYO, SANWA and DKB:

Fiyo, Sanwa and DKB are called as financial keiretsu. The formation of

this financial keiretsu is during 1950s and 1960s they came in response to banks

ability to finance the firm investment and operations.

Link between Group Members:

The important link between the groups in keiretsu is share cross holding.

The cross holding ratio is that the total value of members shares by group

members.

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Group 1987 1999 2000 % change

1987

2000

FIYO 5.27 4.31 3.70 -29.79%

SANWA 4.75 4.79 4.07 -14.31%

DBK 6.99 6.32 5.87 -16.02%

3. MANPOWER OF INDUSTRIAL GROUPS:

FUYO:

The number of employee, number of companies, net profit and net

sales as a percentage of the nonfinancial Japanese companies for the FIYO group

is given below:

Industr

ial

group

No of

Compani

es

Sales as

a share

of total

sales of

non

financial

compani

es

Employment

as share of

total

employment

of non

financial

companies

Profit as

share of

total profit

of non

financal

companies

FIYO

110 2.7 0.9 2.5

SANWA GROUP:

The number of employee, number of companies, net profit and net sales

as a percentage of the nonfinancial Japanese companies for the SANWA group is

given below:

Industri No of Sales as Employment Profit as

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al group Compan

ies

a share

of total

sales of

non

financial

compani

es

as share of

total

employment

of non

financial

companies

share of

total profit

of non

financal

companies

SANWA 84 2.4 0.8 1.1

DKB (DAI-ICHI KANGYO) GROUP:

The number of employee, number of companies, net profit and net sales

as a percentage of the nonfinancial Japanese companies for the FIYO group is

given below:

Industr

ial

group

No of

Compani

es

Sales as

a share

of total

sales of

non

financial

compani

es

Employment

as share of

total

employment

of non

financial

companies

Profit as

share of

total profit

of non

financal

companies

DKB 64 2.9 0.8 1.1

4. MARKETING OF INDUATRIAL GROUPS:

FUYO GROUP:

The trading company of Fuyo Group is Marubeni. FUYO Group activities

are quite diverse. Fuyo group trade more than twenty thousand different

commodities on commission basis, invest in overseas market and domestic, and

they also extend credit to affiliated companies and customers. They also

encourage the joint ventures among companies in the group.

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Comparison of sales of FIYO group with other multinational companies

COUNTRY Sales Index

FUYO JAPAN 100,800 70

ROYAL

DUTCH /

SHELL

NETH/ UK 77,100 53

FORD

MOTOR

USA 37,100 26

GE USA 25,000 17

FIAT ITALY 25,200 17

PROCTERand GAMBLE

USA 10,800 7

SANWA GROUP:

Trading of Sanwa Group is done by Takashiama, Nissho Iwai and Orix.

Sanwa Group carry out logging, milling pulp and paper, purchasing, transport

and wood marketing operations which are more or less equivalent to DKB in size

and scope. Sanwa does not derive its power and profits merely from the

individual companies that make up its clan. The Tag line of Sanwa is Suntory:

Thinking about the Earth, which was emblazoned on its one of the product.

Now a days Sanwa Group is reducing its identification in Osaka whose

head quarters are in Tokyo even it is trying to maintain its old office in the same

place. Sanwa is trying to become national without losing the customers in Osaka.

Comparison of Sanwa Group sales with Multinational Companies:

COUNTRY Sales Index

SANWA JAPAN 90,400 62

ROYAL

DUTCH /

SHELL

NETH/ UK 77,100 53

FORD

MOTOR

USA 37,100 26

GE USA 25,000 17

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PROCTER

and GAMBLE

USA 10,800 7

DKB GROUP:

Trading of DKB Group is done by Itochu, Seibu. DKB use integrated

marketing system which strengthened the capabilities for swift and timely

development of the products and services. Alliance of DKB focus on marketing

the products which are best suited for the customers or consumers. The marketing

personnel should enquire the customer or consumer from the level where they

have information about investing in funds. The key feature of DKB is thatintegrated system which they feel as the best way to ensure the marketing in

responsible manner and also build trust and confidence to customers or

consumers.

Comparison of DKB Group sales with Multinational Companies:

COUNTRY Sales Index

DKB JAPAN 1,07,800 74

ROYALDUTCH /

SHELL

NETH/ UK 77,100 53

FORD

MOTOR

USA 37,100 26

GE USA 25,000 17


PROCTERand GAMBLE

USA 10,800 7

5. CAPITAL / MONEY OF INDUSTRIAL GROUPS:

FIYO GROUP:

In the year 1996 the executive council of FUYO Group has 27 full time

employees. The capital or money for FUYO Group is obtained from Yasuda

Zaibatsu which includes Fuji Bank which is the main bank and also the trusted

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bank of Yasuda Zaibatsu like Yasuda Fire and Marine, Yasuda trust and banking

and also insurance companies and Marine and Yasuda Mutual life. Yasuda

Zaibatsu also supported the companies which are associated or part of FUYO

group like Oki Denki (electronics), Toho Rayon (fibers), Tokyo Tatemono (real

estate) and Showa Line (shipping).

FUYO Group depends on MITI but banks were the centre for FIYO

Group and the Japanese companies does not depend on the government to borrow

money. FIYO Group maintains a high degree of solidarity and communication

among the personal, they dont compete with each other and they even dont

cooperate with the groups outside it and these relations are maintained on mutual

trust bases.

Cross Shareholding of FIYO GROUP IS:

Group 1987 1999 2000 % changefrom 1987

2000

FIYO 5.27 4.31 3.70 -29.79%

SANWA GROUP:

Sanwa Group is obtained after the merging of Sanwa Bank with Tokai

Bank. It doesnt depend on the government but it depends on Sanwa Trust Bank.

Sanwa Trust Bank is formed by merging of Sanwa trust bank, Toyo trust and

Tokai trust. Sanwa Group uses Trade Credit as their financing so, bank loans are

not higher share of liability. Trade Credit is a non financial corporation and it is

lending funds among the group itself. The total trade credit of Sanwa Group in

the year 2000 is 22%.

Sanwa Group is also depended on Nippon Insurance and Nomura

Securities for its financial core. In the big six of keiretsu the member of group

will have cross share holding.

Cross Shareholding of SANWA GROUP IS:

Group 1987 1999 2000 % change

from 1987

2000

SANWA 4.75 4.79 4.07 -14.31%

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DKB GROUP:

Dai-Ichi Kangyo Group is the newest of big six horizontal Keiretsu the

main bank Dai-Ichi Bank which is the core of zaibatsu which is created in Meiji

Era. DBK bank also has ties with other two banks Matsukata and Furukawa.

In 1971 the merging of two banks Dai-Ichi Bank and Kangyo bank made

Dai-Ichi Kangyo bank.

Cross Shareholding of DKB GROUP IS:

Group 1987 1999 2000 % change

from 1987

2000DKB 6.99 6.32 5.87 -16.02%

6. WORLD IS NOT FLAT:

No, Automobile industry is not the regional industry but rather all the

industries act as such, the 500 largest companies in the world accounted for over

$14 trillion of total sales (revenues) in fiscal year 2001. The average revenues for

a firm in the top 500 were $28 billion, ranging from Wal-Mart at $220 billion to

Takenaka at $10 billion. In this study of the intra-regional sales of these 500

firms, a total of 380 were included with available geographic segment data. These

380 firms account for 79.2% of the total revenues of all the 500 firms. The

average sales volume of a firm in the set of 380 is $29.2 billion. Across these 380

large firms the average intra-regional sales represent 71.9%. A relative sales

dominance in a specific regional market, rather than a very wide and evenly

distributed spread of sales, reflects five underlying issues critical to the MNEs

functioning.

Firstly, many number of MNEs are not worldwide but fixed to only a specific

region. This means that the firms products are not really equally accessible

and/or attractive to consumers all around the world, in spite of many MNEs

attempting to adapt their products to local demand.

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The second deals with the lack of success in the worldwide markets, although

based on aggregate company-level data, could be interpreted as a reflection of the

limits to the non-location-bound nature of the MNEs knowledge base that is,

their firm-specific advantages (FSAs). Firms may have sophisticated and

proprietary technological knowledge, brand names, etc., but there may be severe

limits to the joint international transferability of this knowledge, and its

acceptance by customers across regions. These limits may exist irrespective of

whether the knowledge is embodied in final products and then exported,

transferred as an intermediate product through licensing, or utilized in foreign

affiliates through FDI.

The next issue is that the MNEs dint perform well across globe will show the

ability to leverage the critical location-bound FSAs.

Coming to the fourth critical issue, as the MNEs market share is totally different

at various locations so this calls for different strategies to compete

The above given four issues have very crucial importance when it comes to

Multinational Enterprises corporate governance. We cannot say governance is

the only problem and the presence of multiple environmental circumstances mayalso be critical here. However, the need for regional strategies does suggest the

parallel introduction of a regional component in the MNEs governance structure

to deal appropriately with the distinctive characteristics of each leg of the triad,

and with the regions outside it, much in line with Ohmaes (1985) prescriptions.

This need for distinct regional strategies should be viewed as a complement to the

well-known normative models that advocate simple globalization strategies as a

set of purposive decisions and actions instrumental to a broad and deep

penetration of foreign markets (Govindarajan and Gupta, 2001; Jeannet, 2000;

Yip, 2002). Regionalization should be viewed as an expression of semi-

globalization (Ghemawat, 2003). Semi-globalization implies that we observe

neither extreme geographical fragmentation of the world in national markets nor

complete integration. Incomplete integration means that location specificity, in

this case regional specificity, matters. Only in the context of incomplete

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integration is there scope for international MNE strategy that is conceptually

distinct from conventional domestic strategy.

7. REFERENCES:

Clyde Eagleton, Excesses of Self-Determination, in Foreign Affairs, Vol.

31(1953), No. 4.

William Easterly, The Utopian Nightmare, in Foreign Policy

September/October 2005.

Pankaj Ghemawat, Why the World Isnt Flat, in Foreign Policy, March/April

2007.

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Branislav Gosovic and John G. Ruggie, On the Creation of a New International

Economic Order: Issue Linkage and the Seventh Special Session of the UN General

Assembly, in International Organization, Vol. 30 (1976), No. 2.

Louis Henkin, How Nations Behave: Law and Foreign Policy. ColumbiaUniversity Press, 1979.

Wyatt C. Wells. ANTITRUST AND THE FORMATION OF THE POSTWAR

WORLD. Columbia University Press, 2002 Law, Page No 185.

Magnus Blomstorm, Sumner J. La Croix. INSTITUTIONAL CHANGE IN

JAPN. Taylor and Francis, 2006 History, Page No 133.

Gregory H. Watson. BUSINESS SYSTEM ENGINEERING: Managing

Breakthrough Changes for Productivity and Profit. John Wiley and Sons, 1994, PageNo 122.

Nikolaos Karagiannis, Zagros Madjd Sadjadi. MODERN STATE

INTERVENTION IN THE ERA OF GLOBALIZATION. Edward Elgar Publishing,

2007 Business and Economics, Page No 192.

Stuart Crainer, Des Dearlove. FIRESTRATERS!: Igniting the Entrepreneurial

Organization. FT.com, 2001 Business and Economics, 308 Pages

Kenman L. Wong, Scott B. Rae. BUSINESS FOR THE COMMON GOODS: AChristian Vision for the MarketPlace. InterVarsity Press, 2011 Business and

Economics, Page No 140.

Pankaj Ghemawat. REDEFINING GLOBAL STRATEGY: Crossing Borders in

a world where Differences Still Matter. Harvard Business Press, 2007 Business and

Economics, Page No 232.

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