July 23, 2025
SEOUL – A decade ago, warnings about the erosion of South Korea’s manufacturing competitiveness were met with indifference or denial. Today, they land with the weight of hindsight.
Chey Tae-won, chairman of SK Group and the Korea Chamber of Commerce and Industry, offered a stark diagnosis last week: Without a wholesale reinvention driven by artificial intelligence, much of the country’s manufacturing base may disappear within 10 years. That prospect is no longer theoretical — it is already taking shape.
Signs of decline are visible. South Korea has relinquished ground in core industrial sectors such as petrochemicals, displays and steel. Even semiconductors, long a pillar of national strength, are under growing pressure. China’s state-led surge into high-tech manufacturing has narrowed the technology gap and redrawn the competitive map.
In semiconductors, the competition is becoming more unforgiving. According to McKinsey, the entire sector’s profit was captured by the top 5 percent of chipmakers, buoyed by AI-driven demand. Other firms either barely broke even or reported losses.
This imbalance reflects a broader transformation. AI is not a marginal upgrade; it is becoming the new operating system of global industry. From smart automation to predictive supply chains and generative design, AI is reshaping how factories operate and how value is created. First movers are constructing formidable moats of data, talent and scale. Those who lag risk structural exclusion.
South Korea, despite its technological base, is not moving fast enough. A fragmented bureaucracy, inconsistent regulation and limited public-sector coordination have hindered progress. While conglomerates are testing AI applications, adoption among small and mid-sized enterprises remains low.
Barriers include high capital costs, a shortage of skilled engineers and the absence of shared data infrastructure. In contrast, the US and China have embedded AI into their national industrial strategies, aligning goals with sustained investment and cross-sector mobilization.
Chey’s projection — that South Korea’s AI startup ecosystem could grow from 1,000 firms to 20,000 — is not far-fetched. The country has scaled new industrial frontiers before, from shipbuilding to mobile technology. But unlocking this potential will require more than vision. It demands institutional commitment. Regulations must be simplified, infrastructure upgraded and public-private collaboration deepened. South Korea must foster a market in which firms of all sizes can participate, where access to data and computing power matters as much as access to capital.
There are early signs of progress. The appointment of AI specialists to senior government roles is a step forward. But symbolic gestures will not suffice. Structural reform must proceed at pace. Responsibility for AI policy remains scattered across ministries, slowing execution and diffusing accountability. What is needed is a unified strategy that links R&D, education, legal architecture and infrastructure. In the age of compounding advantages, late movers are not merely delayed; they are sidelined.
This makes policy coherence all the more essential. While the executive signals a pro-growth agenda, legislative proposals — including corporate tax increases, expanded union powers and restrictions on shareholder rights — have unsettled industry. Competing with advanced economies that actively court innovation and investment requires clarity, not contradiction.
Manufacturing remains the backbone of South Korea’s export economy and a critical source of high-skilled employment. Business-as-usual no longer applies. The defining edge in global manufacturing is now the integration of AI across the value chain. Leading economies are deploying resources at scale to dominate this new terrain.
Failure to reconfigure South Korea’s manufacturing sector around AI technologies would inflict structural damage that no short-term policy can repair. The last decade was lost to drift; the next must be defined by resolve, clarity and speed. If South Korea misses this make-or-break wave, there may not be another.