arket. The keiretsu have a "one set principle", which means that only one enterprise in each business sector is allowed, to avoid direct competition between member companies. The big six of the keiretsu are Mitsubishi, Mitsui, Sumitomo, Fuji, Daiichi Kangyo and Sanwa, which account for a quarter of total Japanese assets. Two types of keiretsu exist in the economy; vertical and horizontal.The horizontal keiretsu consist of a bank at the core and a large number of companies from related and unrelated industries and services clustered around it. Member companies may be major manufacturers, large service providers like life insurance companies, and other important corporations, but they also may be quite modest in size. To understand how a horizontal keiretsu works, envision a hypothetical small sub-contractor called Company A. Company A makes auto parts and sells to companies within its horizontal keiretsu, which we will call the K-group. The companies that are Company A's customers hold shares of its stock and have placed some of their former employees on Company A's board of directors. It's no accident that Company A's bank belongs to the K-group.Company A has little to say about the prices that it charges because it cannot sell to anyone outside the K-group. If it did, it would soon get cut off from the keiretsu and lose all its business and financing. However, since Company A has K-group members on its board and even on its management team, and has a K-group bank and K-group shareholders, it is unlikely that Company A could even attempt to break away from the K-group.The reward for this kind of control is security. Company A is virtually guaranteed business. Though its potential profits are limited, it will provide its principals with a comfortable living and will provide its workers with stable jobs.A shortcoming of the horizontal keiretsu system is the lack of keen competition for goods, though there are exceptions, especially in th...
