Japanese industry will adapt to South Korean advance

Subject

Competition between Japanese and South Korean exporters.

Significance

South Korea has at last accomplished a national goal it has pursued since the 1960s: catching up with Japan. A cohort of South Korean manufacturing giants has leapt forward, not just catching up but leaving Japanese rivals behind. Contrary to popular perceptions, however, Japanese industry has not correspondingly declined. In some sectors, Japan has retained or even sharpened its edge, while in others Japanese firms have taken advantage of South Korea's success.

Impacts

• Seoul will work to develop alternatives, but Japanese suppliers remain vital and are expanding production in South Korea.
• Exchange rates will strongly influence competition between Japan and South Korea in the short term.
• Production costs in South Korea will eventually converge with those in Japan, making differentiation and innovation more important.