In the past twelve months, Ito Yokado has reorganized itself into Seven & I Holdings and bulked up with Seibu and Sogo department store holding company Millenium Retailing. Motoya Okada’s already quite beefy Aeon group has continued its push to bulk up — even going so far as to wrestle with Don Quijote over a box lunch / home replacement meal manufacturer. A score of other retailers have begun casting furtive glances at other retailers outside their immediate industry. What’s going on?
As with the old industrial groupings that began to break apart in the 80s, one frequently finds a large trading company, such as Mitsui Bussan for Seven & I, or Marubeni for the reorganizing Daiei. Banks are also involved, with Seven & I having its IY Bank and Aeon not far behind. Is the Zaibatsu back?
In the resource-scarce postwar period, industry groups organized themselves around organizations optimized to secure the resources they needed to produce and grow — money and raw materials supplied by the banks and trading companies respectively. In the postwar period, restrictions on holding company structures forced these to effectively exist as horizontal groupings or Keiretsu. With restrictions on holding companies now removed, the two largest industrial groupings are looking a lot more like the old Zaibatsu.
Given current birth rates and Japan’s restrictive immigration policy, Japan’s population is set to halve by 2050. 2006 was a turning point as for the first time since World War II deaths exceeded births, and this trend is set to continue into the middle of the century as fewer Japanese are marrying and having children. Accordingly, the new scarce resource is the consumer, and retailers are reorganizing to dominate distribution so as not to be elbowed aside in the competition to secure those wallets.
Other factors are most certainly involved. These must include Japan’s unique transaction cost economics — the higher cost of doing regular business with a non-affiliate relative to the cost of doing regular business with a trusted affiliate. For more on transaction cost economics, I refer you to the work of Oliver Williamson.
Beyond transaction cost efficiencies is the belief that size matters. For any organization looking to insure its survival in the uncertain period ahead, the Daiei group has demonstrated that it is possible to be considered by the Japanese government to be “too large to fail”, and this is undoubtedly also factoring in.
The Zaibatsu is back.