Since the second half of 1991, the Japanese steel industry has been going through a restructuring process. Output is falling. Profits are declining. Investment plans are being cut back. Across the board, the end of the so-called "bubble economy" has abruptly immersed these companies in the kind of volatile environment that has by now become second nature to their counterparts in Europe and North America. That the immersion has been so long delayed is, in many ways, a tribute to the great accomplishments and capabilities of the Japanese steel industry. But the delay is over. And the capabilities that have served the industry so well in the past may now prove a burden.

Traditional steel companies in all advanced economies confront much the same economic forces: stable or, more likely, declining demand for their products, dramatic shifts in technology, escalating capital costs, and intense competition from both new materials and new entrants. The Japanese come to these challenges with several unique advantages: strong technical capabilities; a history of close, positive ties with customers and government; attractive overall price levels; and healthy balance sheets. In today's restructuring environment, however, some of these strengths may equally prove a burden—an unwelcome limitation...