Shifting Paradigms in Global Manufacturing:
Navigating the New Global Order of the 21st Century
Young Jae Jang
yjang@kaist.ac.kr
KAIST
Abstract
Following the globalization of the 2000s, developed countries such as the United States and Western
Europe established a global manufacturing collaboration system where research and development
and design were conducted domestically, while manufacturing was outsourced to developing
countries, primarily in Asia. This division of labor enabled countries like South Korea, China, and
Taiwan not only to achieve industrial growth centered on manufacturing but also to position
themselves as leaders in technological innovation. However, the onset of the 2020s saw this era of
global collaboration begin to waver, particularly with the COVID-19 pandemic causing a collapse in
global supply chains, thereby offering a recognition of the importance of manufacturing. Moreover,
as China, having grown into a manufacturing powerhouse, entered into economic, political, and
diplomatic confrontations with the United States, a shift in manufacturing policies dependent on
China began. Especially, the Ukraine-Russia war has highlighted the need for military augmentation
as a new international issue, underscoring the fact that semiconductors, crucial for cutting-edge
weapon performance, are directly linked to national security. The recognition of the importance of
semiconductor manufacturing has been further emphasized by innovations in new AI technologies
triggered by generative artificial intelligence, prompting the United States and Europe to actively
foster a second semiconductor boom through supportive semiconductor policies. Ultimately,
manufacturing prowess has emerged as a critical element of national economy, diplomacy, and
security.
In the Age of Globalization
In the book "The Lexus and the Olive Tree," which became a New York Times bestseller in 1999 and
also reached bestseller status in the economics and business category in South Korea, author
Thomas Friedman proposed a new world order through the "Golden Arches Theory" associated with
McDonald's. This period marked the completion of American-centered globalization following the
collapse of the Soviet Union and the end of the Cold War era led by the US-Soviet rivalry. According
to Friedman, countries that had a McDonald's symbolized a certain level of middle-class prosperity
and American influence, implying these nations had achieved a degree of economic growth and
participated in free trade to an extent that allowed for American franchises. Such countries, he
predicted, would prefer cooperation and mutual benefits over war, embracing a system of
collaboration.
The globalization mentioned in this book could also be interpreted as a form of American
hegemonic dominance. However, it is undeniable that the two decades following the book’s
publication were characterized by worldwide cooperation through trade. The United States pursued
a strategy where research and development, product planning, and design that required skilled
labor were conducted domestically, while manufacturing that required a large labor force utilized
the low-wage labor available in Latin America and Asian countries. The training of technical
personnel related to manufacturing also aligned with this globalization strategy. Most American
universities closed in education and research directly related to product production, instead
expanding courses on product design and global supply chain management. Even MIT’s School of
Engineering modified its “Leaders for Manufacturing” program to “Leaders for Global Operation,”
reflecting a shift in focus, a trend that was broadly adopted by other institutions.
Countries that greatly benefited from globalization include South Korea, Taiwan, and China. In
particular, China, with its abundant low-wage labor force, vast land, and active support from the
Communist government, became the world's factory by absorbing most of the labor-intensive
industries. South Korea seized the opportunity to emerge as a mecca for advanced manufacturing
sectors such as semiconductors, flat-panel displays, electronics, and home appliances. Taiwan, on
the other hand, established a new semiconductor ecosystem through its contract manufacturing
model, laying the foundation for TSMC to become the world's largest semiconductor foundry. Under
the foundation of globalization, these countries have grown into manufacturing powerhouses.
The rise of South Korea, China, and Taiwan
As the 21st century progressed over two decades, China has evolved from a low-cost manufacturing
base utilizing low-wage labor to a technological powerhouse capable of producing sophisticated
products. China has dominated the global market in telecommunications equipment, LCD flat-panel
displays, and solar panels, thanks to strong government subsidies and preferential technology
policies. Meanwhile, South Korea's Samsung Electronics and Taiwan's TSMC have secured a unique
position by capturing about 80% of the advanced semiconductor market, based on their capability
to perform cutting-edge ultra-fine processes.
This shift includes the scenario where companies like Intel in the United States, once the world's
largest semiconductor company, have ceded their leading position to companies like Samsung
Electronics and TSMC. Throughout the 2000s and 2010s, the United States faced challenges not
only in manufacturing competitiveness but also in research and development and design
technologies.
What were the problems with the U.S. strategy of concentrating on high-value-added industries like
research and development and product design while relying on other countries for manufacturing?
The answer can be found in "Producing Prosperity," written by Harvard University economists Gary
P. Pisano and Willy C. Shih. They argue that product design and production are closely related, and
the ability to solve production problems is as important for innovation as the ability to choose the
right product characteristics and design features.
Elon Musk of Tesla also mentioned during the Investors’ Day in February 2023 that Tesla's core
innovation was operating design, manufacturing, and automation as a single integrated department.
Previously, separate operations of design and production departments led to failures in achieving
targeted automation rates due to designs that did not consider process production and automation.
After such trials and errors, Tesla is now pushing for car designs that are 100% automatable by
integrating design, production, and automation into one organization.
MIT professor of mechanical engineering, Daniel Whitney, established the theory of "Design for
Manufacturing," which posits that the manufacture and design of advanced products are
interdependent, and designs that consider the production process directly impact product quality.
This theory aligns closely with Tesla's strategy.
Products like semiconductors and OLEDs, similar to advanced display technologies, require extensive
research and technological development in manufacturing processes. Unlike manufacturing that can
be assembled by human labor, such tasks can only be manufactured through 100% automated
advanced equipment. Even with the best semiconductor manufacturing equipment, the technical
know-how based on production requires significant research and investment. Accumulated
production technology acts as a technical barrier that new startups cannot easily replicate.
Therefore, product design and production cannot be simplified into separate domains requiring
skilled labor for research and development and low-wage labor for manufacturing, respectively.
China, South Korea, and Taiwan have emerged as technological and innovative powerhouses based
on the manufacturing industry opportunities provided by globalization. Their success was made
possible through active government policies favoring manufacturing and technology, along with
strategies for nurturing talented personnel.
The U.S.-China Hegemony Competition and the New Perception of Manufacturing Triggered
by the COVID-19 Pandemic
As we entered 2020, China rapidly emerged not just as one of the cooperating nations under U.S.
leadership but as a global superpower challenging U.S. hegemony. The U.S. maintained its
technological and industrial leadership through innovative IT companies like Google, Microsoft,
Meta, Apple, and through the innovation of platform-based industries such as Uber and Airbnb.
However, the increasing dependence on Chinese products and infrastructure led to a perception of
China not as a partner but as an industrial threat.
The U.S. response to the perceived threat from China became proactive with the Trump
administration taking office in 2017. The Trump administration formalized a stance of countering
China through tariffs and trade barriers, creating an economic confrontation. This policy direction
did not significantly differ even with the subsequent Democratic administration. However, up to this
point, the general American public viewed China as an economic threat but did not have a significant
aversion to the dependence on Chinese manufacturing, as it allowed for the supply of inexpensive
daily necessities. Despite the high economic growth in the U.S. post-2000s, this arrangement
enabled the maintenance of stable prices.
The perception towards manufacturing began to dramatically shift following the COVID-19
pandemic. As the pandemic restricted global logistics, it caused disruptions in the supply of daily
necessities. Starting from the spring of 2020, the reliance on China and other Asian countries for
the global supply of daily necessities faced disruptions, leading to supply issues of essential goods
in most countries.
The New York Times extensively covered the "toilet paper" supply crisis, delving into the
vulnerabilities of the global supply chain heavily dependent on overseas production. It marked the
moment when the general public became aware of the issues within the global manufacturing
collaboration network established post-2000. The COVID-19 crisis served as a critical catalyst in
triggering unease and a sense of crisis over the high dependency on manufacturing in specific
countries, especially China.
Artificial Intelligence and the Semiconductor Industry
As the COVID-19 pandemic led to a global increase in remote work and online education, there
was a surge in demand for electronic products. The necessity for personal PCs for working parents
and children attending online classes, along with increased time spent at home, led to a skyrocketing
demand for large TVs and refrigerators. To meet this demand, PC and home appliance factories
operated at full capacity despite the pandemic, with some companies even expanding their factories.
However, increasing operation lines for PCs or electronic products is impossible without resolving
component supply issues, with semiconductors being the most problematic component at the time.
Most modern home appliances require semiconductors. Unlike general assembly products,
semiconductor production facilities, known as fab, face difficulties in quickly establishing new
facilities or expanding. The greatest cause of automobile supply disruptions in 2022, when there
was a surge in new car purchases, was also due to semiconductor shortages.
The world experienced the reality of being unable to purchase desired products due to global
semiconductor supply issues, leading to a deeper awareness of the impact semiconductors have on
our lives. This awareness became a direct reason for countries, including the United States and
Europe, to recognize the importance of the semiconductor industry and actively reflect it in their
policies.
Two significant events have further highlighted the importance of semiconductors: the war between
Ukraine and Russia and the new innovations in artificial intelligence led by generative AI. The
prolonged war following Russia's invasion of Ukraine made it clear that Europe could no longer be
considered a guaranteed zone of peace, raising doubts whether the era of peace through global
collaboration and coexistence, as mentioned by Thomas Friedman in "The Lexus and the Olive Tree,"
was coming to an end.
The United States and Europe began to search for new defense strategies and contemplate their
reliance on defense capabilities, focusing on the fact that semiconductor technology is central to
U.S. defense. Realizing the limitations of conventional defense strategies based on traditional
weapons and infantry post the Vietnam War failure, the U.S. pursued the electronification of defense.
Advanced electronic equipment, such as precision-guided missiles and the latest fighter jets, depend
on semiconductor technology.
Ironically, about 80% of the world's advanced semiconductors are produced in geopolitically
unstable regions like South Korea and Taiwan, with China being the core of these tensions. Since
the 2000s, China has actively supported its semiconductor industry, aiming to emulate and surpass
global low-cost semiconductor production leaders like YMTC and Taiwan's foundry giant TSMC with
its own SMIC.
The advent of technological advancements in artificial intelligence, especially generative AI, has
further amplified the importance of semiconductors. The release of ChatGPT 3.5 demonstrated to
the public the potential of AI to replace knowledge workers. The expansion of such generative AI
technologies requires more and better-performing semiconductors, supporting predictions that the
semiconductor market will double by 2030 compared to 2023.
Semiconductors lie at the heart of AI innovation, making the competitiveness of semiconductor
production essential. Recognizing this, the United States and Europe are actively promoting
semiconductor industry support measures, creating a second semiconductor boom.
Conclusion
Manufacturing has become a pivotal role in a nation's economy, diplomacy, and security. In particular,
semiconductor technology is now recognized as a critical element in national security, with the
United States, Europe, and Japan continuing their efforts to secure leadership in this field. However,
it remains uncertain whether countries that have relatively neglected the manufacturing sector over
the past two decades can rise again as manufacturing powerhouses. Traditional manufacturing
powerhouses like Germany, despite experiencing growth through manufacturing specialization over
the last 20 years, are currently facing various challenges due to their focus on the automotive and
machinery industries, high dependency on the Chinese market, and reliance on energy from Russia
due to environmental policies. The cautious approach to investing in advanced semiconductors,
other than those for automotive use, remains a matter of interest in how well the opportunities for
new growth in the semiconductor industry, driven by generative artificial intelligence, can be utilized.
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