Japanese corporations have outpaced rival firms in the US and Europe in terms of capital investment throughout the 1970 s and into the 1980 s. One of the main reasons behind the high level of investment is the better access to capital that Japanese firms have compared to their western counterparts-the result is that Japanese firms seem to have more debt than their U.S. counterparts. A common reason of this is that they are driven by taking on more debt is for the tax advantages, but there is too little to suggest that there is much difference in the taxation systems between Japan and western countries to support this. The most possible factor is that Japan has been the result of the close relationships which Japanese firms have with each other in a keiretsu structure.

In Japan the majority of companies are formed into enterprise groups called keiretsu (which translates as series or group). The basic characteristics of this are: cross-share holding agreements, interlocking directorates, intra-group financing, joint investment, and a consistent pattern processing among group members. The biggest keiretsu are Mitsubishi, Mitsui, Sumitomo, Fuji, Daiichi Kangyo, and Sanwa (the latter three are centered on Japan s largest commercial banks. All together, these six keiretsu accounted for a quarter of the total number of Japanese business assets.

Background

Structure of Corporate Ownership in Japan

The enterprise ownership structure in Japan is quite different from their counterparts in the western countries, with the ownership has been highly concentrated in Japan. The Japanese Law allows institutional investors to exert more in control of companies and their management inducing them to seek a higher level of equity. In fact, there is a significant difference between Japan and US about the corporation ownership. Ownership by financial institutions (especially commercial banks) is greater in Japan than in the United States. Japanese commercial banks and insurance companies hold about two to three times the number of outstanding shares of listed company than their US counterparts do. On top of being a major shareholder, financial institutions play the roles of also being the largest creditors of the firms. While in the same time, they are playing as an important long-term commercial business partner. For example, it has been shown that out of 344 manufacturing corporations, financial institutions own 34.48% of the common equity and individuals own 29.53%. Therefore, many Japanese firms get more debt from those financial institutions that having highly concentrated in the ownership of the company.

Ownership concentration did not differ significantly between keiretsu and independent Japanese firms. With high ownership concentration and cross-share holding by banks, suppliers and customers, keiretsu firms are able to monitor decisions of firms’ internal activity and direct management s actions to benefit the whole and to act as a collective, but not just being contractual business partners.

Mitsui and Mitsubishi

Mitsui and Mitsubishi are in part of the big 4 zaibastu in Japan preceding World War II and two of the big 6 Keiretsu after the Japan bubble ended in 1991, and which are still major groups currently. Both Mitsui and Mitsubishi have a long developing history and have proved that they are able to survive in the competition.

For over more than 100 years, Japanese industrial organization has been characterized by change rapidly in the market conditions and technological capabilities and continuously evolution in government policies and industrial structure. Before the Second World War, several large monopoly enterprises were leading the Japanese industry. They were called zaibatsu the dominant four, which were Mitsubishi, Mitsui, Sumitomo and Yasuda. During the post-war Occupation the holding companies of the zaibatsu that controlled member firms were dissolved. Many firms then get recombining to create the keiretsu that we see today.

Vertical and Horizontal keiretsu

Vertical keiretsu is arranged according to the hierarchical structure in the production and distribution lines and organized under a principal manufacturer. The benefits of this network include improvement of efficiency and customer services, reducing the distribution costs, simplified marketing channels, reasonable inventory controls and the facilitation of effective information sharing between members. At the same time, the principal manufacturers get the benefits of being in a leading position, which creates a high degree of bargaining power.

Horizontal keiretsu are large groups of transverse Japanese companies in a wide range of industries, organized around commercial banks. Direct competition is avoided between member firms by only having one company in any certain industry line. The success of this type of keiretsu is attributed to their cross-shareholding and the availability of bank loans to their members. This is supplemented with employee exchanges and consensus decision making between member firms. Being in a horizontal keiretsu also means that a stable core of long-term shareholders is in the company’s place. For our purposes, we will focus on the capital structure and other properties of firms in a horizontal keiretsu.

History of Mitsui

Mitsui & Co. is originally formed by Mitsui zaibatsu which was ruled by Mitsui family. It was first founded by Mitsui Takatoshi (1622–1694), in 1673 in edo (now Tokyo) and Kyoto. He start the business from operating silk village, as well as bank since the 1720 s. And then he started to hand money exchange business which is the primarily Mitsui exchange shop as a commercial capital and usury capital, and support the feudal princes, for Tokugawa Shogunate package exchange, as the Mikado — the emperor of Japan’s privileged businessmen and become a rich merchant businessman.

During the Meiji restoration, Mitsui family turned to court, funding new tennoism government for the dispatch troop’s food, developed into a political background. And get support from Meiji government to take in charge of the nation’s financial industry. On this basis, Mitsui bank was opened in 1876 as the first a private bank in Japan, while the set up of Mitsui & Co. is in the same period. The total stock holding company was established in 1910, as the basic form of the modern Mitsui zaibatsu. After the First World War, Mitsui zaibastu became the largest monopoly capital group. Till the end of the Second World War, Mitsui zaibastu had more than 273 companies that directly belong to them and collateral of the company or as its subsidiaries. Mitsui & Co. after that was once almost getting dissolved. By 1950, the Japanese economy was beginning to recover its vitality. Daiichi Bussan expanded its business areas including resource procurement, technology introduction, and both procurement and sales of raw materials. In 1959, with the economy continued growing strongly, Daiichi Bussan was instrumental in bringing together companies that had been affiliated with the former Mitsui to form the new Mitsui & Co.

In 1973, the oil crisis caused a serious economic recession. Even before the oil crisis, Mitsui & Co. believed that energy resource was essential for Japanese industry and national life, and invested actively in relevant areas from energy resource development to plant construction. Mitsui also focused on development of LNG early as a clean energy resource. Mitsui & Co. now have more than 150 members within the company and as its subsidiaries.

History of Mitsubishi

The Mitsubishi Group is one of Japan s Big Six Keiretsu and is the most tightly interwoven of Japan s corporate families. It is a horizontal Keiretsu consisting of numerous companies and subsidiaries.

The origin of Mitsubishi can be traced back to 1870, when the founder, Yataro Iwasaki, started a shipping company with three aging steam ships. Yataro’s brother, son and nephew expanded the business area into various fields during their respective terms as president and set the foundation of the Mitsubishi companies. After WWII, the original Mitsubishi organization was dissolved to become an independent company as they are today. There is a summary of the 140 years history shared by the Mitsubishi companies on their web site.

After the war, the allied occupation in Japan forces that the big industrial groups dissolution. The final Mitsubishi president, Koyata Iwasaki, resisted conforming to the requirements, but unfortunately died in 1945. Mitsubishi Headquarters disbanded on September 30, 1946, and many of the Mitsubishi companies subsequently split into smaller enterprises.

The old Mitsubishi organization ended in 1946. The Mitsubishi holding company was dissolved while the trading house fragmented into hundreds of independent enterprises. Most of the Mitsubishi companies abandoned the name and emblem under pressure from the occupation forces.

Current situation of Mitsui

Mitsui & Co. is one of the biggest Japanese consortiums. The total value of assets is about 36 trillion yen, with nearly 240,000 employees around the world. The core members are formed by 24 big monopoly companies, of which the two banks, two insurance companies, 15 industrial and mining enterprises invested, 1 big department stores, 1 real estate industry, and two transport enterprises.

The Mitsui bank, Mitsui properties, Mitsui Real Estate Company is the consortium’s three big pillar enterprise, the highest leader of these three big enterprise form the core of leadership and management, and also the representative of the Mitsui & Co. In addition, Mitsui & Co. is also controlling a number of collateral companies through loans and holding shares. There are 114 companies which they are holding more than 10% of the total market share.

Current situation of Mitsubishi

Mitsubishi Corporation (MC) is a global integrated business enterprise that develops and operates businesses across virtually every industry including industrial finance, energy, metals, machinery, chemicals, foods, and environmental business. Mitsubishi Corporation’s current activities are expanding far beyond its traditional trading and operations as its diverse business ranges from natural resources development to investment in retail business, infrastructure, financial products and manufacturing of industrial goods.

The Mitsubishi group is close-knit. Of the 29 firms belonging to Mitsubishi’s presidents’ council, 23 are named Mitsubishi. The Mitsubishi group firms are managed relatively conservatively. The main bank for the group, Mitsubishi Bank, merged with the Bank of Tokyo, a quasi-governmental bank that was set up in the Meiji Period to handle foreign exchange transactions. The general trading company for the group is Mitsubishi Shoji, which is important enough to be part of the core of the group. The other member of the core of Mitsubishi is Mitsubishi Motors.

Makeup of the Mitsui Group

Companies currently associated with the Mitsui family include Mitsui & Co., Sumitomo Mitsui Trust Holdings, Japan Steel Works, Mitsui Chemicals, Mitsui Construction Co. Mitsui Engineering and Shipbuilding, Mitsui Fudosan, Mitsui-gold, Mitsui Mining & Smelting Co. Ltd., Mitsui Oil Exploration Co. (MOECO), Mitsui O.S.K. Lines, Mitsui Petrochemical Industries Ltd, Mitsui-Soko, Mitsui Sumitomo Insurance Group, Oji Paper Company, Pacific Coast Recycling, Sumitomo Mitsui Banking Corporation, Taiheiyo Cement, Toray Industries, Toshiba Corporation, Tri-net Logistics Management, Mitsui Commodity Risk Management [MCRM]. Mitsui Group also has substantial interest in Vale and Caemi Mineração e Metalurgia, which owns 70% of Minerações Brasileiras Reunidas (MBR). Mitsui Engineering and Shipbuilding Co. owns just over 50% of the shares in MODEC Inc.

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Structure of Mitsubishi

The Mitsubishi Group is composed of three core conglomerate companies, Mitsubishi Heavy Industries, the Bank of Tokyo-Mitsubishi, and Mitsubishi Corporation.

I) Mitsubishi Heavy Industries

Mitsubishi Heavy Industries is Japan s largest maker of heavy machinery. Its vast operations include the sectors of construction, military defense, aviation, aerospace, chemical, shipbuilding, and thermal and nuclear power. Large-scale plant construction and the building of machinery, such as household appliances, account for approximately 70% of sales.

ii) The Bank of Tokyo-Mitsubishi (BTM)

BTM is the world s largest bank, with 350 branches in Japan and more than and over 400 offices in countries all around the world. Approximately 50% of the bank’s business is overseas, which is quite unusual for Japanese banks. Financial services of BTM consist of consumer, commercial, and investment banking; foreign exchange; investment management; trust services; leasing and securities trading. In recent years it has been crippled by corporate bankruptcies, bad loans and poor investments, thus it was unable to bail out troubled competitors. Currently they are teaming up with other Mitsubishi group members to enter brokerage, investment banking, and insurance areas, which were recently deregulated by the Japanese governments.

iii) Mitsubishi Corporation

Mitsubishi Corporation, established in 1950, is one of the world s largest and most diversified enterprises. It is a Japanese Soga-shosha (trading company) with worldwide operations. This corporation employs approximately 15,000 employees around the world and does business through more than 50 offices in Japan and over 200 offices and subsidiaries overseas. Mitsubishi Corp has eight groups consisting of information systems, fuels, metals, machinery, chemicals, living essentials, (which includes agricultural products, food and beverage, textiles, and construction materials), logistics, and merchant banking.

Organizational Structure

Future direction

Traditionally, the keiretsu corporations have been divided into horizontal and vertical keiretsu. The horizontal keiretsu center on a main bank and their companies span various industries. Vertical keiretsu center on a major manufacturer, and include its various suppliers. The keiretsu encourage its members to award contracts to sister companies and cooperate with each other for the overall good of the keiretsu. The keiretsu dominated the Japanese economy in the last half of the twentieth century.

More recently, however, the keiretsu have been losing their grip, and the long-term business relationships of the keiretsu are fraying. When written in Japanese, keiretsu comprises two characters, meaning system and row. Thus the term keiretsu is now used more generally to mean an alliance of companies and individuals that work together for mutual benefit.

Mitsui & Co.’s five principal functions are marketing, financing, logistics, risk management, and IT and process development capabilities. They combined these functions to create and optimize value chains in a wide range of business fields. And Mitsui is now majorly working in six core areas: Metals, Machinery & Infrastructure, Chemicals, Energy, Lifestyle, and Innovation & Cross Function.

Mitsubishi is a community that consists of a multitude of independent companies. There are all kinds of companies from many different industries using the Mitsubishi mark. The names of most — but not all — of those companies contain the word Mitsubishi. And many of the companies use the three-diamond Mitsubishi mark. But none calls itself simply Mitsubishi.

Ex: Banking & Securities, Chemicals, Commerce, Construction, Consulting & Research, Insurance, etc. MC also anticipates trends in the market and society and takes initiative to develop new business.

As a result of recent changes in the Japanese market, there is some speculation that the ties that bind company groups in Japan could be loosening. The joint of foreign capitals and supplies may lead to a new style of Japan giant corporations.

It was mentioned by Micheal L. the process of overall alliance formation in Japan, therefore, has been one of increasing scale and complexity in group structures. The evolution of alliances has not been a wholesale replacement of old forms of organization with new firms, but a laying of newer and often higher-level structures on top of preexisting, perhaps even primordial, social forms, with the new combination coexisting with other groups serving other organizational purposes.

Alliance Capitalism, The Social Organization of Japanese Business, by Michael L. Gerlach. UNIVERSITY OF CALIFORNIA PRESS, Berkeley · Los Angeles · Oxford

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Mitsui and Co. Ltd.

www/mitsui.com/jp/en/index.html

Mitsubishi Companies

www.mitsubishi.com/e/index.html

Zaibatsu and Keiretsu – Understanding Japanese Enterprise Groups (parts 1-3), by Andrew H. Thorson of Dorsey & Whitney LLP. Published: 2008-03-26

corporate.findlaw.com/corporate-governance/zaibatsu-and-keiretsu-amp-150-understanding-japanese.html

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www.mitsubishicorp.com/jp/en/about/org/