Stephanie Hilgeford
Charlotte Ford-Cunningham
Al Renner
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Pre-World War II
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Goal = realize economies of scope
◦ Manufacturing, distribution, and banking industries
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4 major zaibatsu
◦ Matsui, Mitsubishi, Sumitomo, and Yasuda
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Family-controlled monopolies
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Holding company at the top of hierarchy
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Wholly owned bank subsidiary
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Supplied military forces
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Post – World War II
◦ Dissolution of zaibatsu
◦ Removal of decision-making executive
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Modified zaibatsu 1950s = keiretsu
◦ Occupation force support because of Mao’s
communism and the Korean War
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Benefit
◦ Solution to last-period problem
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Issue
◦ Monopolistic
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2 forms
◦ Horizontal
◦ Vertical
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6 major keiretsu
◦ Mitsubishi, Mitsui, Sumitomo, Fuyo, Dai-Ichi
Kangyo, and Sanwa
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4 pillars of keiretsu
◦ Lifetime employment, seniority wages, enterprise
unions, and consensual capitalism
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1899 – company was incorporated
Early 1920s – involvement with Sumitomo
1925 – ISE transferred 15% of ownership to Sumitomo
1943- Sumitomo took full control
1945- Sumitomo ordered to dissolve
Mid-1950s computer industry
1960s- Honeywell collaboration
1977- C&C initiative
1996- Merger with Packard Bell
2003- NEC goes public
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President: Kaora Yano
Senior Executive Vice Presidents:
◦ Botaro Hirosaki and Masatoshi
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Major operations
◦ IT service, IT products, and network systems
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166,800 employees
328 consolidated subsidiaries
Operation in 44 countries
SWOT Analysis: NEC Corporation
Strengths:
Weaknesses:
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Diversified products
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Geographic concentration
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Strong strategic relationship
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Corporate governance issues
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Research and development
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Declining revenues and
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Strong industry position
Opportunities:
profitability
Threats:
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Innovated technology
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International market competition
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Demand for digital products
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Global economic slowdown
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Increase efficiency
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Adequate protection of
intellectual property rights
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Japan’s recession began in the early 1990s
with the collapse of stock and land values.
Bank for International Settlements (BIS) began
enforcing more strict maintenance of capital
adequacy ratios for banks.
1987–1991 representing strong economic
growth
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1992–1996 the first five years of Japan’s
economic decline
1997–2001 significant regulatory change as
well as intensified economic decline.
Big Bang deregulation announced in late
1996 and implemented in fiscal year 1997.
Propping, tunneling and the role of
the internal capital market present
issues of the Keiretsu.
 Propping
 Tunneling
 Internal Capital Market
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Propping- occurs when weaker less stable firms are
held up financially by the stronger firms in the
Keiretsu with intra-group financing, etc.
Tunneling - occurs when powerful owners or other
insiders engage in private benefit consumption to
the detriment of other stakeholders in the firm.
Internal Capital Market – when propping and
tunneling take place the internal capital market is
compromised due to the sustainment of firms that
would have failed.
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No demand for products
Strategies
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President Watanabe’s vision
Public works contracts
Adapt military technology to civilian market
Laid off 2,700 employees
Closed 3 plants and R&D facility
Outcome - Recovered in 50s due to new
telecom markets
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Telecom market saturation
Strategies
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President Kobayashi’s vision
Future success in knowledge based products
Total Quality Control movement
Zero-Defect movement
Restructured to 14 autonomous divisions
Outcome - Global expansion
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Performance hurt by: Japanese recession,
strong yen, US competition
Strategies
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Expand global markets
PCs sold in Europe
Joint manufacturing ventures in Asia
Merger - Packard Bell NEC PCs
Outcome - FY 96:
◦ Net worldwide sales $41 billion
◦ 89 domestic & 38 overseas subsidiaries
◦ 152,719 employees
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Packard Bell NEC fails, $1.5 billion net loss
Strategies
◦ Investments: 97 - $285 million, 98 - $225
million
◦ NEC is majority owner
◦ Pulls plug on US retail PC market
◦ Closed CA plant, laid off 2,100 workers
Outcome - FY 00: $10 million net income
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Kerietsu system emerged after WW II
Lifetime employment, seniority wages,
enterprise unions, and consensual
capitalism
NEC a member of Sumitomo since 20s
Kerietsu are less centralized and integrated
NEC’s future: IT service, IT products, and
network systems