Japanese Economy Essay Example | Topics and Well Written Essays - 3000 words

Japanese Economy - Essay Example Its major undoing is the slow reaction to external events due to the fact that players in this system are in part protected from factors emanating form external markets. (Moffatt, 2011) It is of ample importance to revisit the definition of what the system of Keiretsu comprised before tackling it further. Keiretsu was that system adopted by Japanese firms where they would have transactions between or among them in the long-run. One of the major firms that took up this system is those in the automobile industry besides others like the banking industry and insurance sector. In this line, it is quite notable that the major information that is exchanged among the concerned firms involves broadly technology and this is especially in the subcontracting of tasks. Mostly, parent companies have the knowledge about the production capacities of the subcontracting firms, the financial conditions, employee’s skills, corporate cultures among other things. On the other hand, subcontracting f irms are bestowed with the knowledge of their parent firm’s requirements in terms of production plans of the future, and technological needs, among others. This knowledge that has been shared between the two groups of firms is made easy by the exchange that is witnessed whenever they are giving each other consummatory kind of information by way of relations that have been set for long-run by the parent firms and subcontracting firms. Keiretsu, therefore, is a major example of social exchange based on relations. Social exchange has been merited for its transaction costs’ reduction. Opportunistic behavior is also discouraged by the long-term relations, which are dependent on shared knowledge amongst these firms. These long-term relations that are social exchange based to a high extent reduce the costs of transactions in consideration to technology, where the technology meme is divided more effectively in the parent-subcontracting firms’ relationship. Vertical inte gration is, particularly noted to be the main way transaction costs are reduced. Therefore, in the Keiretsu system any given transaction is preferred to display a vertical kind of integration and the benefits to the parent company are a must so that the independent subcontractors are allowed to enjoy their freedom as independent entities. The vertical integration type of approach means that the meme of the parent company absorbs that of the subcontracting company’s in terms of at least the management style or the corporate culture. If it happens that the meme of the subcontractor has proven beneficial to the parent company, then the parent company will pick the keiretsu as opposed to vertical type of integration. (Yamamura, 1997 p253) According to Tabeta and Rahman, in 1996, Keiretsu is to huge extent efficient and besides this it aids in environmental adaptability of the companies of Japan. The structure of a Keiretsu group reduces the costs relating to transactions as well as enhancing coordination between the suppliers and automakers. It was founded from the 1984’s discussions by Aoki as well as Asanuma’s and their studies were focused on the economics of transaction cost outlays in the system of subcontracting in the automobile industry. (Tabeta and Rahman, 1996) In the period towards the late 1980s, the economy of Japan enjoyed a Keiretsu contribution to the economy of around 17% in terms of total sale revenues as well as