Alliance Capitalism: The Social Organization of Japanese Business

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Summary: A network analysis of the horizontal keiretsu
Review: There has been the deluge of books and articles on Japanese keiretsu. But this book published a decade ago (1992) is still one of the best. There are so many good enough accounts on the vertical keiretsu appeared in the Toyota¡¯s value chain. But not so, when it comes to the horizontal keiretzu. There is no shortage of materials but most of them are no more than anecdotal case studies or, at best, cursory impressions. I can¡¯t capture why they form such a long-term ties based on what interest at all, for example. The advantage of vertical keiretsu is obvious and well described. But what is the economic foundation of horizontal keiretsu? Is it mere social club of economic elites? Nobody could think so. The network structure (or network form) of horizontal keiretsu is well documented, such as main bank, cross shareholding, sacho-kai, and the preferential trading. But those are merely links forming the network. The network is more than the sum of links. It¡¯s the linkage of links and it has contents. Links reproduce itself for something flows between nodes. This book plugs the gap systematic explanation of horizontal keiretsu with network analysis. In doing so, the author mobilizes not only qualitative data from interviews and business history but also extensive quantitative data to generalize his remarks to level of the population of the Japanese businesses. The author begins with describing the network structure of keiretsu from chapter 3 to 4. Then the remaining chapters deal with how the network formed and how it operates in real business environment. Namely, those chapters deal with the contents of network. Now you might retort ¡®what¡¯s the difference from other materials? This book would supply better and well-organized illustration of keiretsu. But aren¡¯t those features common in other works?¡¯
Maybe. But the most inspiring piece lies in the use of image. Keiretsu is the interfirm network and it¡¯s not unique on Japan but the ubiquitous phenomenon all over the world. Usually, they use the image of coalition, as it has developed in the game theory. The interfirm network, however more stable it is than arm¡¯s length trading, is usually depicted with the image of coalition. The coalition, particularly in the form of game theory, is relatively fluid relationship. The coalition comes and goes according to the logic of strategic self-interest. This is the reality of business such as strategic alliance. Yesterday¡¯s foe could be today¡¯s friend. For example, Apple shook hands with IBM to make PowerPC. But such an image doesn¡¯t fit into the long-term relationship of horizontal keiretsu over more than a generation. Affiliation in a keiretsu group is considered as permanent one. Instead, Gerlach uses the metaphor of alliance to illustrate the features of Japanese keiretsu. The image of alliance comes from anthropological fieldworks. It suggests long-term social relationship that links kinship groups over generations. The self-interest is also the driving-force in the kinship alliance. Kinship groups establish the long-term ties with other kinship groups through swapping women. Through this tie, they exchange resources like calling on in times of need or for protection of one¡¯s own group. Those are valuable resources in primitive societies, with no doubt, and this relationship is long-term by nature. But in such a relationship, self-interest is tempered by the central role played by group history.
Horizontal keiretsu emerged from the self-interest of member firms to stabilize the flow of resources. So at the center of group have lain the bank and sogo shosha. During the early postwar period, the capital and raw materials were scarce and most needed resources to be secured, and that, affiliation in the group opens doors to trade with other group members, and with the trading partners those firms have. But once the network is put into action, it takes the life of its own: It was instutionalized in the routine of business. Just as firms seek to position themselves advantageously in their industry and in the broader business community, so too do groups as a whole. Keiretsu network, for instance, expands itself with new memberships. Most of expansion has involved the firms that compete against firms in other keiretsu. Keiretsu compete against keiretsu for positioning in the business community. By expanding to include group-level representation in a broad variety of fields, the group simultaneously preempts market opportunities, enhances its prestige in the larger business community, and diversifies risk across a spectrum of industries. The power and prestige of the group make the individual member firm more appealing to prospective business partners and improves its status in the larger business community. The fortunes of group and companies are in this way intertwined. In other words, affiliation in group translates into marrying with the group. The individual firms act as if they are the members of the clan. This kind of interfirm network could be facilitated for the unique Japanese business history. 3 out of outstanding 6 (now 4) groups are ex-zaibatsu (industrial group). And some influences in early postwar period are crucial in forming the keiretsu.
But this is the problem of this book: no convincing explanation about why such alliance is found only in Japan? This book offers good enough description of the phenomenon. I can¡¯t help asking ¡®Is this enough explanation?¡¯ Unfortunately I don¡¯t think so. If you have this kind of question, I recommend, Ulrike Schaede¡¯s ¡®Cooperative Capitalism¡¯. This book has a very long-term standpoint from Tokugawa period to the present. This book is not about keiretsu. But you could understand the institutional background of Japanese business.

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Summary: Very Insightful Book
Review: This is the most insightful book I have ever seen on the subject of Japanese business. The author clearly knows his subject