Date of Defense

Summer 6-30-1997

Department

Economics

First Advisor

Wei-Chiao Huang, Economics

Second Advisor

Annette Brown, Economics

Third Advisor

Metthew Higgins, Economics

Abstract

In this paper, the possibility of adopting the Japanese keiretsu system is examined. The keiretsu system in Japan enables companies to share resources. Some positive aspects of this system are interlocking shares, strong financial support, and having long term business relationships. In forming larger size companies, firms can enjoy a larger human resource base, which may translate into better research and development initiatives. With these companies providing fringe benefits like low rent apartments, sport clubs, etc. and perceived lifetime employment, employees can be motivated to be loyal. The Japanese culture, too, explains the success of the Japanese. The closed culture promotes respect and docility. The wage system that is based on seniority will work well in this type of society. Such an economy with large firms forming a tier and small to medium enterprises forming the second tier also ensures a stable economy. In Japan too, most employees are classified into the permanent and temporary categories. In business cycle expansions or recessions, high employment or unemployment starts with the temporary tier. However, the main category of permanent workers, usually employed by large firms and keiretsu companies, remains mostly intact. This dual structure type promotes stability in the economy.

Singapore is trying to sustain the growth it has accomplished for the past few years. The local market is too small to sustain this growth. Some of its current strategies are trying to increase its human resource and through government agencies, encourage local companies to invest overseas. Currently, plans are underway to group companies to seek overseas opportunities.

The keiretsu structure can make local companies stronger faster; by sharing resource, they are then able to compete in the international market. Certain similarities of the two economies must exist before such a system can be implemented; the obvious similarity lies in that both economies have very strong government influences in their business activities. Culturally too, the two countries do share some East Asian values. Both exhibit strong domestic savings and have a very well educated work force. The foundations for such an implementation do exist. Implementing the details, however, will be more difficult. The Singapore government has the ability to do that through its creditability and the strong legal system. Moreover, the government needs to protect SMEs from possible unfair competition by large enterprise groups. If such a system is to be adopted, the government is recommended to form the foundation by setting up rules and regulations. By targeting the strong Singapore financial sector and thereby adding companies from specific industries, a Singapore keiretsu can be formed with ease. Thereafter, the government should concentrate on monitoring enterprise group activities to prevent collusion and unfair competition concerns. The specific recommended enterprise group structure requires member companies to have two identities - able to compete independently and also be able to share in a group structure.

Access Setting

Honors Thesis-Campus Only

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