Economic contact points between South Korea and Japan are expanding, ranging from consumer goods to semiconductors and artificial intelligence (AI) startups.
The number of Korean companies that established new corporations in Japan last year recorded an all-time high. Analysis suggests that the movement to use the Japanese market as a growth base is spreading due to the Korea-China decoupling effects stemming from intensifying US-China conflicts, as Japan is geographically close and has relatively low political risks. Economic contact points between the two countries are also expanding, ranging from consumer goods to semiconductors and artificial intelligence (AI) startups.
According to the Nihon Keizai (Nikkei) Shimbun on Jan. 2, the number of Korean corporate and individual investment cases that established new corporations in Japan from January to September last year was tallied at 318. This figure already surpassed 2024 (316 cases), which was the largest on an annual basis in history. By industry, retail accounted for the largest share at 23%, followed by manufacturing (19%) and information and communications (15%).
The actual amount of investment remitted from Korea to Japan during the same period also reached $1.327 billion (approximately 1.91 trillion won), more than doubling the full-year 2024 performance ($638 million). Considering that Korea’s total overseas direct investment decreased by 0.7% compared to the same period the previous year, Nikkei evaluated that the increase in investment toward Japan was notable.
In terms of investment scale, Japanese investment in Korea still remains overwhelming. According to the Bank of Korea, Japan’s direct investment in Korea (based on debt-adjusted balance) has exceeded $50 billion since 2018, while Korea’s direct investment in Japan remains around $10 billion.
However, the ratio of Korea’s direct investment in Japan compared to Japan’s investment in Korea has expanded from 2% in 2002 to 26% in 2024, showing a trend of narrowing investment gaps between the two countries. Kazuhiro Hyakumoto, Research Director at the Japan External Trade Organization (JETRO), analyzed that “investment flows between Korea and Japan are changing from the existing one-way traffic from Japan to Korea to bidirectional.”
The background behind Korean companies’ vibrant expansion into Japan includes the Korean Wave boom of K-pop and Korean dramas. This is confirmed by the successive establishment of local stores and sales corporations, centering on cosmetics and restaurant brands. Nikkei noted that “unlike before, there is a clear trend of pursuing sales efficiency through direct marketing within Japan rather than exports through trading companies.”
Additionally, as Korea has enhanced competitiveness in various industries, demand has also grown to start businesses in Japan, which has a larger population and is geographically closer.
CJ CheilJedang invested approximately 10 billion yen in September last year to establish a food factory in Kisarazu, Chiba Prefecture, becoming the first Korean company to build a new food factory. The plan is to reduce costs through local production in response to increasing dumpling demand within Japan. Nongshim, well known for ‘Shin Ramyun,’ also opened a Korean-style ramen specialty store in Harajuku, Tokyo in June last year.
Korean fashion platform Musinsa plans to open its first offline store in Tokyo in the second half of this year. The company has built performance since establishing a Japanese corporation in 2021 through department store pop-up stores and online sales through ‘ZOZO,’ Japan’s leading e-commerce company.
AI semiconductor startup Rebellions and Kakao Healthcare, which operates healthcare applications, also established Japanese corporations last year. Nikkei reported that “many Korean companies say they want to secure a customer base in Japan, which has high digital transformation (DX) intentions, and use it as a springboard for global expansion.”
In the semiconductor field, a flow of investment from Korea to Japan is appearing, contrary to the past. Related companies showing interest in Kyushu, where TSMC has entered, and near Hokkaido, where Rapidus is building a factory, have increased. The System Semiconductor Industry Promotion Center under Seoul National University is expanding briefing sessions for Korean small and medium enterprises on entering Japan.
Nikkei explained that economic security considerations also underlie the attention to Japan in advanced technology. Korea has been increasing local corporations by establishing manufacturing and sales bases in China, which has a large market size and low labor costs, but recently, investment in China has noticeably slowed.
According to a 2024 survey by the Korea Development Bank of 500 Korean companies with bases in China, 31% answered that they would “withdraw from China or reduce business within the next 2-3 years.” Intensifying competition (28%) and US-China conflicts (25%) were cited as major reasons.
However, there are not few hurdles to overcome before Korean companies can settle their businesses in Japan. Based on listening to local company opinions, the Korea Trade-Investment Promotion Agency (KOTRA) pointed out difficulties in the Japanese market: “decision-making takes too long because they value trust and performance” and “they excessively demand detailed specifications.”
Nikkei advised that “as Korean companies’ entry into Japan increases, withdrawal cases may also increase together,” and “sufficient support from government agencies and the private sector is necessary.”
