Some themes of the Structural Impediments Initiative (S.I.I.) such as the keiretsu relations can be considered as outgrowth of the business strategies followed in the course of Japan's industrialization: diversification at its early stage and then specialization since around World War I.On account of national economic backwardness, a pioneering Japanese foreign trader, for example, had to diversify into various ancillary business such as shipping, marine insurance and foreign exchange dealing, in sharp contrast to British merchants who could rely on outside specialized intermediaries for ancillary business. Pioneering Japanese shipbuilder had to diversify into manufacturing engines, pumps, cranes and even steel plates whereas the British shipbuilders could buy such equipment and material from specialized outside manufacturers. Furthermore, as the orders for ships was still limited, the shipyards had to build various non-marine products such as mining machines and electric motors. In addition, the pattern of consumption of the Japanese continued to be traditional for a long time and the manufacturers of modern consumers goods could not integrate the processes, for example, of spinning and weaving, much less the functional integration of manufacturing and marketing, while the process and functional integration was the basic business strategy of American big business in the nineteenth century.In short, Japanese business firms could adopt neither the strategy of specialization nor that of integration and had to follow the strategy of diversification at its early stages of industrialization. However, when the industrialization had progressed well at the beginning of this century, the individual business or manufacturing units within such diversified enterprises started to seek, as a matter of course, a greater scale and greater freedom of operation and were thus separated and established as formally independent specialized enterprises, for example, Taisho Marine and Fire Insurance Co. from Mitsui Trading Co. and Mitsubishi Electrical Manufacturing Co. from Mitsubishi Shipbuilding Co. Uniquely Japanese in such development is the fact that these separated firms continued to maintain close relations with their mother company and with fellow firms which had spun off from the same mother company. The Japanese business groups, some of which were once zaibatsu, developed in this way as a result of management decentralization rather than management centralization, thus resulting in close trading relations with mother and fellow firms which are now discussed as keiretsu transactions.One of the reasons why Japanese enterprises did not follow the American firms in integrating their diversified business units by building extensive management hierarchies was in their system of the“shop-floor-centered management”. To implement the newest technologies introduced from the West, Japanese industrial firms allocated human resources such as educated engineers not to their head offices but to the shopfloors and successfully developed contextual skills unique to each workshop. Such well organized shop-floor-centered management and the absence of an imposing management hierarchy stimulated and facilitated the spinning off of the individual business and manufacturing units for the purpose of responding to widening market opportunities. At any rate the development of business groups was thus accelerated and the management of interfirm relations such as keiretsu transactions seems to have been more important than the functional organization building for the development of modernbusiness enterprises in Japan.
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Jan 29, 2003
Kathryn L Dewenter 
Open Access