Production Network Effects
= for the Third Digital Revolution, which is about Digital Hardware < production network effects matter more than pure digital network effects > [1]
Discussion
Chor Pharn:
"Underlying these two paths is a broader technological shift in the next decade that favours China’s strengths over America’s. We are now entering third era of digitization, aka digital manufacturing, embodied AI, AI + robots etc. In earlier eras, computing and the internet digitized information and connected people – value was created through distribution network effects (the more users on a platform, the more value it generated). Silicon Valley excelled at this, building software and platforms that scaled globally with relatively little physical infrastructure. But the new era – driven by AI, smart devices, and clean energy tech – is hardware-intensive. It’s about embedding intelligence in the physical world, from microchips to electric vehicles to smart cities. In business terms, the locus of value is shifting upstream: instead of software being expensive to develop and cheap to run, AI has made software cheap to create but expensive to run, because it demands huge computing power and energy. AI turns software itself into a constantly learning network, guzzling data and electricity – so the real competitive advantages now come from control of data centers, semiconductor fabs, battery supply chains, robots and factories. In short, the production network effects matter more than pure digital network effects. This is a world where scaling up means manufacturing at immense scale and optimizing hardware as much as code.
And here, China owns the board. Decades of investment in industrial capacity have made China the manufacturing center of the world."