The intelligentization of the supply chain is one of the main themes of the next industrial revolution. It will give birth to the most important part of the digital economy and will have a great impact on the global industrial layout, the economic and political strength of each country, and the social structure.
Supercomputing, artificial intelligence, robotics, unmanned driving, and the Internet of Things are key technologies for supply chain intelligence, and chips are the cornerstone of all intelligent technologies. Therefore, chips and related fields have become the focus of technology and industrial chain competition between China and the United States, the two most powerful countries in the world. What are the key forces and characteristics of supply chain globalization and de-globalization? How can China and the United States restructure the global smart supply chain amid fierce competition? What opportunities, pitfalls and impacts will the two countries encounter on their respective transformation and upgrading journeys? This is the main issue to be discussed in this paper.
The formation of the global supply chain pattern
The current pattern of globalization was gradually formed after World War II. The relatively peaceful world environment has made people shift their focus to the pursuit of a comfortable life and the path to wealth that follows the rules.
The wave of global outsourcing of U.S. manufacturing began in the early 1960s. At that time, many large companies adopted the vertical integration model, that is, from parts to final products, they made their own as much as possible, or purchased parts and services in the nearest country. At that time, the manufacturing industry employed a large number of people, computers had not yet entered factories, and the Internet had not yet come out. Robots and artificial intelligence were only research topics in academia, and their application was far away. There was no technical basis for factory intelligence. At the same time, the environmental protection movement began to rise, and workers’ wages increased steadily. These factors caused the rapid rise of US manufacturing costs.
Therefore, profit-seeking capitalists in the United States first let the production of more polluting raw materials (steel, chemicals, etc.) leave the country, and then companies further subdivide the production process and outsource some non-critical processes to many companies in different countries (mainly in Asia). European companies later also participated in this “outsourcing” wave.
Enterprises in developed regions such as Europe and the United States mainly grasp the functions of marketing and innovation, and gradually move away from the raw material extraction and processing links in the upstream of the industry. However, most of the production machines and key components used in manufacturing are still controlled by developed countries, and their related technologies are updated. It is also done in developed countries. In this way, capitalists in developed countries not only found cheap labor overseas, but also discovered huge emerging markets. So they embarked on a gamble of investing in building a global supply chain.
Developing countries with large populations and relatively low environmental protection requirements welcome this gift from Western capitalists with open arms, and have introduced policies to attract foreign investment, striving to land these outsourced industrial functions in their own countries. Developing countries often first purchase machines from developed countries, paired with cheaper local labor, provide raw materials and engage in low-end parts production and product assembly, in order to gain a place in the global industrial chain, and then step by step to improve their own technical strength , to seek industrial upgrading. The division of labor in the manufacturing industry and global outsourcing activities have also promoted the vigorous development of the global logistics industry, with shipping, air and land transportation all showing their prowess.
Japan was the first to undertake the outsourcing of European and American industries, and its industries were upgraded in the process, and some manufacturing plants were moved to the “Four Little Dragons” (South Korea, Taiwan, Hong Kong, and Singapore). There are many Chinese in these areas who control economic activities. They started to set up factories in the mainland in the 1980s, and started the process of connecting the industry in mainland China with the world. After the mid-1990s, China’s reform and opening up gradually improved, and European and American companies began to directly invest and build factories in mainland China. At that time, China had a large number of laborers, high quality and cheap land, and the Chinese government also attached great importance to economic development. Coupled with its huge market, capitalists from all over the world made a lot of money, and China also gained the opportunity for industrial development. Funds, advanced technology, management capabilities and markets in developed countries. After China joined the World Trade Organization (WTO) in 2001, the manufacturing industry developed more rapidly and gradually became the “world factory”. At present, the added value of manufacturing industry accounts for nearly 30% of the global proportion.
This round of globalization process lasted for more than 60 years before the global supply chain was able to complete and become the skeleton of today’s world order.
Factors of Global Industrial Chain Adjustment and Reversal
Although the wave of globalization after World War II has benefited many people, it also has many negative effects, and the forces of anti-globalization have always been with us. Over the past decade or so, these forces have been increasing and gathering.
After less developed countries become part of the global supply chain, their local technology and management capabilities grow rapidly, while the cost of labor, environmental protection, land and other resource elements also rises rapidly. Therefore, the transfer of low-end manufacturing to places with lower costs is a normal adjustment and deepening process of the global industrial chain. After 2010, some low-end industries in China began to move out to India, Vietnam and other Southeast Asian regions. However, based on the unique relationship culture, some regions in China have built a huge supply network with strict division of labor, high efficiency and flexibility, such as Huaqiangbei in Shenzhen and Yiwu in Zhejiang. The industrial clusters composed of complementary small and medium-sized enterprises have partially offset the rise in various costs by their efficiency and flexibility advantages. In addition, around some industries (such as smartphones) where foreign companies are the leaders, Chinese local companies have gradually formed supply chain clusters with better cost performance and higher technical thresholds. It is not easy to rebuild this cluster in other countries. These factors have made the migration of more complex industries out of China slower than many had predicted.
After the less developed countries have formed a certain manufacturing capacity, they will inevitably have to improve their technical capabilities in order to obtain more profits. They will gradually squeeze into the advanced parts market, and some companies will evolve from product assemblers to industry chain leaders. Entering advanced equipment industries such as production machines and testing equipment is also an important goal of industrial upgrading in backward countries. These moves will naturally share the interests of manufacturers in developed countries, which has become an important driving force for them to restructure their supply chains.
In developed countries, although capitalists have benefited a lot from the process of globalization, many industrial workers have become victims due to the hollowing out of their own manufacturing industries. These people have become an important political force in the country to oppose manufacturing outsourcing and promote the return of manufacturing. A country with a hollowed-out manufacturing industry will also have a partial decline in its technological innovation capabilities, such as weakening motivation for new material research and development and resource exploration, slowing down the trial and error speed of new products, and gradually withering manufacturing talents. This situation has made some elites in developed countries highly anxious.
China has been the biggest beneficiary of globalization in the past few decades. Its economic and technological strength has increased rapidly in this process, forming the so-called “east rise and west fall” trend. Many people thought that the increase in economic and trade exchanges would bring us closer, but the result is that we are drifting apart. In recent years, governments and social elites in China, Europe and the United States have been reflecting on the engagement policies of the past few decades, and mutual vigilance and hostility have increased, making adjustments to strategies extremely urgent. At present, adjusting technology policy and supply chain has become the focus of the US government.
Since the beginning of 2020, the global pandemic and geopolitical conflicts have exposed the vulnerability of the highly efficient global supply chain, and its operating costs have also increased rapidly, making the originally relatively simple economic issue an issue of supply chain security and even national security. Provides additional impetus and sense of urgency to overhaul global supply chains.
At the same time, in the past few decades, technologies such as artificial intelligence, robots, computers, mobile communications, and the Internet/Internet of Things have also advanced by leaps and bounds. Many automation ideas that could not be achieved decades ago may now be possible. Human-driven logistics is also possible. Therefore, in addition to continuing to chase cheap labor around the world, capital can also form an alliance with new technologies to reshape a brand new “smart supply chain”.
Under the influence of various factors such as politics, economy and technology, the reorganization and upgrading of the global supply chain is going on in great waves. What is its possible ultimate scenario?
“Global Village” becomes “Allied Continent”
The last round of globalization formed a “global village”, and capital is the main driving force. However, various forces such as politics, capital and technology are tearing apart this “village”, driving the global supply chain to split into different “alliance states”.
The so-called “Alliance Continent” is a supply chain ecosystem formed by some regional or cross-regional allies. The “Continent” includes smart factories, smart logistics and supporting functions. In the same “Allied Continent”, values, laws and regulations, and technical standards are similar, and all links and functions of the industry are included in it, and all parts interact closely. However, there is poor trust between “continents” and “continents”, and the differences in political systems and technical systems are relatively large, so the connections and constraints can be minimized. Some countries and regions will participate in multiple different “alliance states” to maximize their own interests.
Based on the latest intelligent technology, people will redesign the manufacturing process and transportation process, and the number of links and factories in the industrial chain may be significantly reduced. The final assembly plants of industry leaders can be located near multiple major markets, and supply chain companies in an “alliance state” cooperate closely with each other to take into account efficiency, resilience and cost, reduce the risk of single point failure, and better maintain national security and supply chains Safety.
Smart supply chains are capital, technology and talent intensive assets. In the future, the demographic dividend will disappear, the factory will be fully automatic, and the scale of the factory can also be miniaturized, supplying smaller areas and customer groups. Smart logistics is highly flexible and will increase unmanned driving. At present, the Foxconn-style super-large-capacity giant manufacturing plant that supplies the global market and gathers hundreds of thousands of workers has a single point of vulnerability, and there is no need for such a layout in the future.
The core technology cornerstone of the intelligent supply chain is semiconductor chips. Chips are also the cornerstone of many fields such as intelligent military industry, consumer electronics industry, modern management and services. At present, the United States is the leader in the world’s semiconductor industry, and Japan, South Korea, and Taiwan also hold important positions in the chip industry, and mainland China is pressing harder and harder. The Chinese government has issued a large number of policies and invested heavily in the development of chips and related smart technologies. Its “Made in China 2025” national action plan and five-year plan and other programmatic documents are aimed at comprehensively upgrading the industry digitally and making China a manufacturing powerhouse. into a manufacturing powerhouse.
Western groups headed by the United States regard China as a strategic competitor. At present, the focus of technological competition between China and the United States is chips. On the one hand, the relevant policies issued by the United States further enhance its own technological and industrial strength, and selectively take care of its allies. In 2022, the United States will introduce a number of laws, such as the “American Competition Act” and “Chip and Science Act”, which will invest about 80 billion U.S. dollars in tax cuts for semiconductor companies and subsidize the semiconductor manufacturers of the United States and its allies to build factories in the United States. In addition, nearly 200 billion U.S. dollars will be invested in scientific and technological research and development in the next five years to enhance the leading position of the United States in the fields of artificial intelligence, supercomputing, Internet of Things, new energy, smart manufacturing, and logistics.
On the other hand, the United States intends to promote the decoupling of Chinese technology, hinder the flow of related technologies into China, and at the same time reconstruct the ecology of the industrial chain to reduce dependence on the Chinese supply chain, and even exclude China from the supply chain of some industries. For example, the United States has issued a series of administrative regulations to control the export of advanced semiconductor equipment, devices, and software to China, restrict investment in China’s high-tech industries, and restrict Americans from serving Chinese semiconductor companies, thereby reducing the impact of the United States and its allies on China’s semiconductor industry. Empowerment.
The “allies” headed by the United States prefer to deploy locally, followed by neighboring countries in North America (Canada, Mexico), and then in Europe, Australia, and trusted countries and regions in Asia (such as Japan, South Korea, Taiwan, Vietnam, India, etc. ). The economic and trade “ballast” between China and the United States has eased, and the ability of the “boat of friendship” to withstand wind and waves has also weakened.
China is not passively responding to the “technical decoupling” situation, but has laid out its own key technologies and supply chains very early. A lot of investment has been made in raw material supply, key technology research and development, transportation capacity and line construction, and a huge global system has been formed. If the members of the “Allies” led by China are only some developing countries, their population size is not small, but the total amount of funds is small, the market size and quality are relatively inferior, and it is difficult to maintain the high-quality operation of a huge supply chain system , It is also difficult to support the sustainable development of China’s technology and economy, so it is necessary to include enough developed countries into its “allies”.
Opportunities and challenges brought by intelligent supply chain
This wave of intelligent upgrading and restructuring of the global supply chain will profoundly change the forms of technology research and development, product and component manufacturing, as well as logistics, people flow and capital flow around the world, bringing economic growth and decline and political changes in many regions. The new generation of intelligent manufacturing will no longer be at the bottom of the “smiling curve”, but will return to its high value-added status. The “Allied Continent” is being formed in the competition between major powers, and its impact on the world is no less than that of the last round of “Industrial Revolution”.
For developed countries with advanced technology and high labor costs, this wave can be used to optimize industries and supply chains. For example, the United States can use the latest intelligent technology to grasp the commanding heights of manufacturing and logistics technology more broadly, become a leading creator and supplier of a new round of technological products, and better take into account supply chain resilience and national competitiveness in the process of restructuring the supply chain. Multiple factors such as safety, production cost and efficiency. The return of manufacturing to the homeland will also help the healthy operation of the “innovation-manufacturing-market” cycle, making the country’s economic development and technological progress more sustainable, while increasing the total local employment scale and per capita output.
However, developed countries such as the United States may not be able to quickly realize their ideal goal of restructuring the global supply chain. This process requires a huge investment and requires a lot of talents. It is doubtful whether the U.S. financial community has enough patience and foresight to support this process, and the sustainability of U.S. public opinion and policy support also needs to be tested, because the result is likely to increase the cost of some products, shrink the international market, and affect the interests of some people. damage, opposition voices will be closely followed. The political system, technological level, culture and ideology of Western developed countries are relatively similar, and supply chain intelligence is their common pursuit. It is logical for them to form an “alliance continent” led by the United States. But each country has its own unique interests and demands, and some countries will definitely make multiple bets.
At present, China, as the “world factory”, is an important hub connecting the technology and market of developed countries with resource supply regions, and can take advantage of this opportunity to achieve leapfrog development. In terms of new technologies such as intelligent manufacturing and logistics, China, which is basically at the same starting line, has the opportunity to make up for its own technical shortcomings in the process, invent a large number of new machines, participate in a real “industrial revolution”, and significantly improve manufacturing and manufacturing. Efficiency and flexibility in logistics. Given China’s rapidly aging population, smart supply chains can make up for a dwindling workforce.
However, the intelligentization of the supply chain is a double-edged sword for China, and China has to shrink the traditional manufacturing capacity and logistics scale in the process. Coupled with the return of some manufacturing industries to developed countries and the relocation of some manufacturing industries to other countries, China’s export volume will decrease, and China will even lose its status as the “world’s factory”. Under the impact of various factors at home and abroad, employment may be significantly affected. Therefore, the government must be extremely careful to balance the impact of multiple factors such as technological progress, labor force size, and international competition with the tolerance of society.
In addition, if China is decoupled from the technology system of developed countries, it will affect China’s technological progress and the total size of its domestic and foreign markets. The intelligent upgrade of the supply chain requires a lot of funds. The best strategy is to use the income from the market to continuously fund technology development to form a positive feedback loop. If this process is mainly supported by taxation, it will not only be an unbearable burden for taxpayers, but also make capital utilization inefficient. Therefore, the proportion of high-quality allies in the “alliance continent” dominated by China is very critical. China has a huge domestic market. If we uphold the principles of openness and fair trade, we can attract high-quality economic and trade partners.
From a global perspective, this supply chain upgrade and restructuring will take at least two decades. If competition in all aspects is benign and beneficial to human progress, smart supply chains can significantly improve the efficiency and resilience of manufacturing and logistics. Due to the rich capital and high level of technology in developed countries, the benefits of intelligent supply chains are many. The deployment of intelligent supply chains will probably take place first, and China and other manufacturing countries can also transform and upgrade simultaneously. However, the traditional manufacturing and transportation industries will shrink significantly on a global scale, resulting in massive unemployment. The backward countries will lose a convenient path to enter modern industry and industrial upgrading, and their labor force may also lose the quick opportunity to participate in modern industry. The global disparity between rich and poor is unfavorable. The reorganization of the world’s economic and political sectors triggered by the restructuring of supply chains will inevitably create new geopolitical problems.
It is still difficult to predict what the future pattern of “Allies Continent” will be. This depends not only on the strength and perseverance of the “leading brothers” of the two camps, but also on the quality and will of the key members of the camp. Opportunities, frictions and corresponding consumption generated by this supply chain competition and reconstruction will influence the future direction from time to time. In the next two decades, the world will look completely different from the peaceful and prosperous globalization of the past few decades. The three forces of political contest, capital game and technological progress are intertwined, driving the intelligent upgrade of the global supply chain and the simultaneous occurrence of great geographical shifts, making this complicated process complicated and confusing, and the risks are unpredictable. Roller coaster, fasten your seat belts.
(The author is a researcher at Liankexihe Carbon Neutral Industrial Strategy Research Institute, and a part-time researcher at the China Science and Technology Policy Research Center of Tsinghua University)
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