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Manufacturing Policy Portal [beta]

Hosted by the Centre for Science, Technology & Innovation Policy (CSTI)

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Japan Overview




Japan is one the world’s most sophisticated manufacturing nations with world-leading firms in a range of industries. Japanese firms specialize in high-quality components and products, and excel in managing complex global industrial networks and sophisticated integration engineering. According to UNIDO, Japan was responsible for over 14 per cent of the world’s manufacturing value added (MVA) in 2010, behind only the US and China.

Automotive and electronics represent two major pillars of Japan’s manufacturing industries—Japanese firms commanding around 30 per cent global market share in car production and over 60 per cent market share in digital cameras. Japanese firms also excel at material processing and mechanical production activities, often carried out by smaller firms. They are global leaders in a range of areas such as aircraft components (notably in aerostructure and avionics system components), robots (capturing over 70 per cent of the global market), and fine chemicals.

Japanese firms have traditionally conformed to keiretsu, pyramid-like structures of vertical integration whereby smaller firms — producers of components and manufacturing equipment and related industries — are nurtured and protected by larger manufacturers of assembled products to which they supply highly specific components and processes.

The environment for Japanese manufacturing industries has remained extremely challenging since the global economic crisis of 2008 and, of late, concerns have been raised at government level with regard to the ability of Japanese industrial structures to remain competitive in the face of international competition. Pressures on Japanese industries were exacerbated by the Great East Japan Earthquake in March 2011, which had long-term harmful effects not only to Japanese but also to global supply chains. The dependency on the automotive and electronics industries and the transfer of production and other high-value-added activities overseas have also been cited as potential risks in the future.

The government of Japan refers to the ‘six-fold agonies’ faced by Japanese industries which have a strong effect on policy decisions: yen appreciation, comparatively high corporation taxes, delayed free-trade agreements, ‘heavy employment rules’, stringent environmental restrictions, and unstable electricity supply.