Rushing to Adopt Foreign AI Could Leave Korea’s Manufacturers Dependent on Big Tech

Relying solely on foreign artificial intelligence in factories may not be enough to preserve the competitiveness of South Korea’s manufacturing sector, according to a new report. As global technology companies bundle semiconductors, cloud infrastructure and AI models into a single ecosystem, failing to build a domestic supply base could increase reliance on overseas platforms.

The Korea Institute for Industrial Economics & Trade said in a report released on September 6 that the focus of AI policy should expand beyond helping manufacturers adopt the technology to fostering a domestic supply ecosystem. Simply buying and using foreign technology could leave the AI industry vulnerable to disruptions similar to the supply-chain crisis sparked by Japan’s export restrictions on materials, parts and equipment.

The report said AI competition is shifting from individual technologies to the entire value chain. Full-stack vertical integration spanning power, data centers, semiconductors, software and services is becoming a key driver of corporate competitiveness. Nvidia is combining chips, software and cloud services, while Google, Amazon and Microsoft are also linking their own semiconductors and AI models to cloud platforms.

In that structure, strength in core components such as high-bandwidth memory, or HBM, is not enough to secure leadership. Suppliers’ positions can shift depending on the strategy of the company that controls the broader ecosystem. Manufacturers using AI can also be exposed to lock-in if they build systems around a specific platform, making it costly to move to another service.

The think tank said the sequence of manufacturing AI adoption also highlights a gap between South Korea and Europe. Europe has built a foundation for data-sharing and interconnection among companies through initiatives such as Catena-X and Gaia-X since 2021. It has then combined that base with industrial AI to cut production-line changeover times and advance unmanned operations in some processes.

South Korea, by contrast, has put more emphasis on AI adoption projects at individual companies than on a shared data foundation. According to the report, manufacturers in South Korea are spending 70% to 80% of total development time on organizing and processing data. Unless the country also strengthens domestic suppliers of information technology and operational technology, or IT and OT, support for AI adoption could end up helping foreign platforms expand their market.

The report identified vertical AI tailored to manufacturing sites as an area where South Korea should concentrate. Rather than trying to compete in general-purpose AI, which requires massive capital investment, it said a more realistic approach would be to use the equipment, process data and production experience accumulated at home.

Manufacturing sites are also places where standard cloud-based AI cannot easily be applied as is. Some equipment operates on a millisecond basis and must respond immediately to abnormal signals. Communication delays caused by sending data to external servers and receiving analysis results can be a constraint. Semiconductor and defense plants that are separated from external networks for security reasons also face limits in using services built on outside access.

In those settings, edge technology that processes data near equipment and on-site training capabilities become more important. The Korea Institute for Industrial Economics & Trade said South Korea should use its manufacturing base to build an AI supply chain capable of making decisions and controlling systems inside factories.

The report also said South Korea needs to move quickly to define autonomous operations standards that can identify process abnormalities and allow equipment to cooperate on their own. The goal is to move beyond simply buying AI and into a position where the country sets the rules for how it operates on manufacturing floors.

Lee Sang-hyun, a senior research fellow at the Korea Institute for Industrial Economics & Trade, said operating standards such as criteria for identifying process anomalies and rules for autonomous coordination among equipment can only be established by countries that have accumulated long manufacturing experience and field data. He added that South Korea must secure those standards if it wants to move beyond being a consumer of foreign AI and become a country that sets the rules for autonomous manufacturing.