Keiretsu is a business network composed of manufacturers, supply chain partners, distributors and financiers who remain financially independent but work closely together to ensure each other’s success.
In Japanese, the word keiretsu means “group.” In business, the word is often used as a synonym for partnership, alliance or extended enterprise. The formation of a keiretsu allows a manufacturer to establish stable, long-term partnerships, which in turn helps them to stay lean and focus on core business requirements.
Keiretsu are often established to share best practices and improve risk management by lowering unknown variables. In Japan, for example, companies belonging to a keiretsu often hold a large amount of each other's stock to prevent the threat of hostile takeovers. The close relationships that a keiretsu provides may also be used to stabilize a supply chain, protect proprietary technology and discourage partners from disclosing information about each other to competitors.
The stability a keiretsu provides, however, can sometimes be a liability and prevent the manufacturer from responding quickly to changes in the economy, culture or technology. Keiretsu can also lead to closed markets and monopolies that control every step in an economic chain, which in some countries can result in legal sanctions.