INTERNATIONAL FINANCIAL ECONOMICS UNIVERSITY OF AMSTERDAM

Koito Manufacturing, Ltd.

Jasper Dijkstra Jack Driessen Mark Jager Xin Wang Maarten Dalm

5876362 0516511 10192921

10216081

Question 1 Many economists argue that the keiretsu system has been a formidable impediment to the entry of Western companies into the Japanese market. However, the absence of liberal market competition may preclude Japanese firms from implementing more cost-effective sourcing strategies at the global standard. Furthermore, it is often argued that the keiretsu system has been partly responsible for the decade-long recession: while there was need for quick changes, the negative features of the keiretsu form of governance maintained the economic slump. The interdependence of suppliers, unproductive cost management and top-down decision making based upon continuity and consensus all contributed to the decade-long recession. We will now discuss the corporate governance issues that may arise, seen from different perspectives. a) From the perspective of financiers. Financiers are always looking for the best investment possibilities. The keiretsu system can make it difficult for (individual) financiers to invest in the best possible option. This is because of the fact that a keiretsu will not allow foreign or alien companies into their system. On the other hand, when the leading company of the keiretsu needs money, financiers can more or less be obliged to invest: the money is invested in a bad project and possible profits are lost (Kawai, 2009). b) From the perspective of owners. One of the key features of the keiretsu system is member cross-ownership. These owners are the control-oriented owners. Their primary concerns are the relationships with the businesses in which they have stocks. So their objective is to maximize the relationship values and the economic performance of