A COMPARATIVE STUDY ON THE LEARNING CURVE : SINGAPORE, JAPAN AND KOREA

Abstract

The notion that unit costs and prices decline systematically in real terms as cumulative volume increases has been one of the .most widely discussed and utilised concept during the past two decades. This phenomenon known as the learning curve or experience effect has had major impact upon corporate strategy, marketing strategy and the strategy literature. Much work has been done on the applications of the learning curve, however, research on the estimation of learning curves is limited. Also, existing literature focuses on the comparison of learning curves across industries and firms domestically. This study thus seeks to estimate and compare learning curves across international boundaries - Singapore, Japan and Korea. The study encompasses a comparison of learning curves in twelve industries in the manufacturing sector. Some measurement and econometric issues, which are often overlooked by researchers, are highlighted in this study. Econometric issues like aggregation, error in variables and the lag effect are required for a more scientific assessment. Two sets of learning curves were estimated in this academic exercise, one using a simple model, the other which modifies the simple model to include the lag effect (partial adjustment model). The results obtained from the two models were significantly different. Under the simple model, Japan emerged as the country with the fastest rate of learning in all industries except one. The partial adjustment model, however produces a significantly different set of results - it seemed to moderate the learning effect in Japan. Besides comparing the learning curves across countries, a comparison was also done within each country. The findings of this study indicate that the slopes of the learning curves vary across industries in the same country, they also vary across countries in the same industry. The findings of this exercise suggest that cumulative output has different impacts on the relative cost position of the twelve industries. These results have important implications on strategy formulation.