Financial regulations led to diversification of interest and a strategic shift of banks from their previous reliance on loans to fee based income which meant that loans to organizations were no more the cheapest source of funding. The keiretsu firms had long shielded themselves from hostile takeovers, competition and group integration. But it came with a cost of lower profitability than other non group firms. But these firms failed to make new investments in changing infrastructure due to their preferential agreements and in time were referred to as old industries.
With the dynamics of a changing legal and market environment the competitive edge enjoyed in the past by Keiretsu firms has weakened which requires them to revisit their proposition. Although longevity, stability and reciprocity previously proved to be beneficial for these highly leveraged and intertwined firms relying on high sale and low profit strategies, they are losing their values in an era of pursuit of profitability.
The main bank has been given a new role and is no longer considered as a bail out option for organizations and focus keiretsu firm structure on long term stability is being repositioned towards knowledge information and importance of brand image. Today the Japanese companies have repositioned themselves to compete with open and dynamic markets, have expanded into new product markets and have reduced the risk exposure by maintain low debt to equity ratios. The low profitability, forgone investment profits (on stock dividends) due to preferential trade with member companies make Keiretsu firms less efficient.
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