The Great Industrial Reconfiguration

Why the next generation of industrial champions will be built across borders, and why controlling the value chain matters more than owning it.

We keep telling deep tech founders to build globally. But perhaps we have misunderstood what that actually means.

Building globally is not simply about selling into international markets, opening subsidiaries or accessing foreign capital. Increasingly, it is about understanding where the capabilities required to industrialise a technology actually reside, and how to assemble them without surrendering strategic control. This distinction matters because the geography of innovation is diverging from the geography of production, while the geography of value capture follows yet another logic.

For much of the past two decades, the deep tech ecosystem has operated around a relatively intuitive proposition: scientific breakthroughs create technological advantages, which can subsequently be transformed into commercially valuable businesses through sufficient capital, engineering and execution. The model has produced remarkable companies, but it has also encouraged a somewhat misleading understanding of where competitive advantage originates. Venture investors have become sophisticated at assessing scientific differentiation, intellectual property, technology readiness and market potential. They have been considerably less systematic in evaluating the industrial and geographical conditions required to translate those technologies into economically viable products.

AI is making this imbalance more consequential. Computational biology, generative materials design, automated experimentation and increasingly powerful simulation tools are compressing parts of the discovery process. The number of potentially valuable technological solutions is expanding faster than the infrastructure required to validate, manufacture and commercialise them. Yet the physical world remains stubbornly resistant to the economics of software. Manufacturing yields cannot be improved through additional computing power alone. Clinical trials still require patients, protocols and regulatory oversight. Industrial equipment must be commissioned, supply chains qualified, and production processes stabilised.

The paradox is that accelerating technological discovery may actually increase the relative scarcity, and therefore the economic value, of industrial execution.

But there is another dimension to this transformation, one that receives considerably less attention. The capabilities required to build frontier technologies are not distributed uniformly across the world. Scientific expertise, industrial infrastructure, specialised talent, financing instruments and regulatory environments remain concentrated in distinct geographical ecosystems. Meanwhile, geopolitical fragmentation is making access to these capabilities increasingly conditional.

The result is a new competitive equation: companies must industrialise technologies faster, with increasingly complex capital requirements, while navigating a world in which the most efficient value chains are not necessarily the most politically acceptable. This creates a counterintuitive proposition: as the world becomes more fragmented, the most competitive frontier companies may need to become more internationally integrated, not less.

The industrialisation paradox

Deep tech has traditionally been associated with technological risk. Can the underlying science work? Can a lab discovery be translated into a functional prototype? Can the company establish sufficient intellectual property protection to defend its position? These questions remain essential, but they describe only part of the problem. A technology can be scientifically validated without being industrially reproducible. It can be industrially reproducible without being economically competitive. And it can be economically competitive without being commercially deployable in the jurisdictions where demand exists.

These distinctions are fundamental because each transition requires different capabilities, capital structures and organisational arrangements. Northvolt illustrates the consequences of underestimating them. The Swedish battery manufacturer attracted more than $15 billion in financing and became one of Europe’s most prominent industrial projects. Its ambition was not simply to develop competitive battery technology, but to establish a European manufacturing ecosystem capable of challenging established Asian suppliers. Yet building industrial capacity proved considerably more difficult than financing it. Production delays, manufacturing difficulties and insufficient output undermined customer relationships and financial sustainability, culminating in the bankruptcy of its Swedish parent in March 2025.

The broader lesson is not that Europe cannot manufacture batteries, nor that Northvolt’s technological foundations were necessarily inadequate. It is that industrial competence cannot be purchased simply by financing industrial infrastructure. Manufacturing is an accumulated capability, dependent on process knowledge, engineering experience, supplier coordination, quality management and thousands of operational adjustments that rarely appear in investor presentations.

China’s competitive advantage in batteries and electric vehicles is frequently described through the lenses of subsidies, labour costs or production capacity. These factors matter, but they do not fully explain the performance of companies such as BYD or CATL. Their advantages also reflect decades of cumulative industrial learning, dense supplier networks and close integration between product development and manufacturing operations. Economists (from Alfred Marshall to Enrico Moretti) describe part of this phenomenon through agglomeration economies : productivity advantages arising from the geographical concentration of complementary activities. Specialised suppliers, engineers, equipment manufacturers and customers operate in proximity, reducing coordination costs and accelerating the circulation of practical knowledge.

These advantages are difficult to replicate because they are systemic rather than confined to individual companies. Scientific knowledge can increasingly circulate internationally through publications, software, talent mobility and collaborative research. Industrial knowledge, by contrast, is often tacit, embedded in production processes and dependent on repeated interactions between specialised actors.

The geography of knowledge is becoming more fluid. The geography of industrial competence remains considerably more concentrated.

This creates an important asymmetry between scientific and industrial development. A frontier company might possess a technically validated solution while remaining several years away from achieving commercially acceptable yields, unit economics or production reliability. The capital required to bridge that distance can exceed the investment necessary to establish the underlying technology. And as AI continues to accelerate discovery, the number of companies confronting this second transition is likely to increase.

The implication for investors is substantial. Technology readiness and industrial readiness should be assessed as separate dimensions of company development. A successful laboratory demonstration establishes that a solution is technically possible; it does not establish that the company can manufacture it economically, reproduce its performance at scale or integrate it into an existing industrial value chain. In many frontier sectors, these subsequent transitions may ultimately determine more of the company’s value than the initial scientific breakthrough.

The new geography of competitive advantage

The industrialisation challenge becomes more complex when considered alongside the fragmentation of international economic relations. The global economy is not simply dividing into competing blocs. It is developing an increasingly intricate structure of dependencies, restrictions and strategic complementarities.

The US remains exceptionally strong in VC financing, advanced computing, frontier research and the commercialisation of high-value technologies. China combines large domestic markets with extraordinary manufacturing capabilities and increasingly sophisticated scientific research. Europe retains considerable strengths in industrial engineering, advanced equipment, pharmaceuticals and specialised manufacturing. Japan, South Korea, Taiwan and Singapore occupy critical positions across semiconductor production, precision engineering, electronics and advanced industrial infrastructure.

These are not interchangeable ecosystems. Each offers a different combination of capabilities, costs, financing conditions and institutional constraints. Consequently, the most attractive jurisdiction for scientific development may differ substantially from the most attractive jurisdiction for industrial validation, manufacturing or commercial deployment.

Semiconductors provide perhaps the clearest illustration. For decades, the industry’s development has depended on a highly specialised international division of labour. American companies dominate important segments of chip design and electronic design automation. TSMC has developed world-leading manufacturing capabilities in Taiwan. ASML, headquartered in the Netherlands, supplies essential lithography equipment. Japanese companies occupy critical positions in semiconductor materials and manufacturing equipment. The competitive strength of this system comes from specialisation and coordination rather than complete national self-sufficiency.

Yet its geographical concentration has also become a strategic vulnerability. TSMC’s expansion into Arizona illustrates the resulting trade-off. Its first Arizona fabrication plant began high-volume production using 4-nanometre technology in late 2024, while the company has committed to expanding its American manufacturing footprint. The investment responds to commercial demand, supply-chain resilience and geopolitical considerations. But reproducing advanced semiconductor manufacturing outside Taiwan involves more than constructing fabrication facilities. It requires developing supplier ecosystems, training specialised workforces, establishing operational routines and integrating production into an existing global value chain.

The relevant economic question is therefore not simply whether semiconductor production can be relocated. It is whether the additional resilience and strategic autonomy justify the capital expenditure, operational complexity and potentially higher production costs. Technological sovereignty and industrial efficiency are not always aligned. Governments may rationally accept higher costs to reduce strategic dependencies. Private companies, however, must reconcile these objectives with capital efficiency, competitive pricing and shareholder returns.

Biotechnology reveals a different configuration of the same phenomenon. American and European pharmaceutical companies have increasingly turned to Chinese-developed drug candidates through licensing and strategic partnerships. These transactions reflect China’s growing capabilities in drug discovery and clinical development, as well as the commercial advantages of accessing differentiated assets without reproducing every stage of development internally. This development is significant because China is no longer simply a manufacturing location or an alternative market for Western pharmaceutical companies. It has become an increasingly important source of clinical-stage innovation, supported by domestic research capabilities, clinical infrastructure and a growing biotechnology ecosystem. For pharmaceutical groups facing substantial patent expirations, licensing promising assets developed in China can offer an economically attractive alternative to developing every programme internally.

The transactions also demonstrate that geopolitical competition does not necessarily eliminate economic interdependence. Companies may face political pressure to reduce strategic dependencies on China while simultaneously recognising the commercial advantages of accessing Chinese innovation. The relevant decision is not binary. It involves assessing which activities create unacceptable dependencies, which can be diversified, and which international relationships remain essential to competitive performance.

This is where the geography of innovation becomes inseparable from the geography of value capture. A technology may originate in one country, undergo clinical development in another, receive regulatory approval in a third and generate most of its economic value in a fourth. The country where a technology is invented is not necessarily the country where the greatest economic value is ultimately captured. And the company that owns the original intellectual property does not necessarily control the most valuable elements of the resulting commercial ecosystem.

In frontier tech, comparative advantage is no longer simply about where an activity can be performed most efficiently. It is about where that activity creates the greatest strategic value within the entire development pathway.

The strategic question is therefore changing. It is no longer simply where a company should locate its activities, but how it should sequence and connect them to maximise learning, preserve optionality and retain control over the value it creates.

The next industrial leaders will be architects

The natural response to these challenges might appear to be vertical integration. If industrial capabilities are scarce, supply chains vulnerable and international relationships increasingly uncertain, companies should internalise as much of their value chain as possible. There is considerable logic to this argument. BYD’s integration across batteries, power electronics and vehicle manufacturing has allowed it to coordinate innovation across components and systems. TSMC’s manufacturing expertise creates advantages that cannot be reduced to individual fabrication technologies. In both cases, accumulated operational knowledge and coordination capabilities reinforce technological competitiveness.

But vertical integration also introduces significant costs. Owning industrial infrastructure increases capital intensity, reduces organisational flexibility and exposes companies to the financial consequences of underutilised capacity. For young frontier companies, these costs can become particularly problematic because technological, commercial and regulatory uncertainties remain substantial.

The appropriate question is therefore not whether a company should integrate vertically. It is which activities must be controlled to preserve competitive advantage, and which can be accessed more efficiently through external ecosystems.

BioNTech’s collaboration with Pfizer provides a useful counterpoint to the assumption that frontier companies must independently own the entire industrial value chain. BioNTech contributed its mRNA technology and specialised expertise, while Pfizer brought extensive capabilities in clinical development, regulatory affairs, manufacturing and global distribution. The collaboration allowed the companies to combine complementary assets rather than requiring BioNTech to reproduce the infrastructure of a multinational pharmaceutical group before commercialising its technology.

The partnership was not simply an outsourcing arrangement. It represented a deliberate combination of capabilities, capital and organisational infrastructure, allowing both companies to accelerate development and deployment. The lesson is not that outsourcing is inherently superior to vertical integration, but that strategic control does not necessarily require ownership of every productive asset.

This is fundamentally a problem of organisational and economic design. A company may identify an excellent manufacturing partner in another jurisdiction but discover that the contractual arrangement creates unacceptable intellectual property exposure. It may accelerate clinical development internationally while generating evidence that does not fully satisfy the requirements of its intended commercial market. Each decision may appear rational in isolation while producing an inefficient overall architecture.

The deeper issue is that frontier companies operate through several interconnected systems. Their technological architecture determines how knowledge, components and processes interact. Their industrial architecture determines how products are manufactured, validated and delivered. Their financial architecture determines how risks are allocated and which forms of capital can support successive development stages. Their geographical architecture determines where capabilities are accessed and how regulatory, commercial and political constraints affect execution.

In this context, capital efficiency becomes more than a function of operating discipline. It becomes a consequence of how intelligently the company has designed its international development architecture. This is not simply expansion. It is company building at the level of the global value chain.

The next generation of frontier technology companies will operate in an environment characterised by two apparently contradictory trends. Technological knowledge will become increasingly accessible, supported by AI, computational infrastructure and international research networks. Meanwhile, the physical, financial and institutional capabilities required to commercialise that knowledge will remain unevenly distributed and increasingly exposed to geopolitical constraints.

Scientific differentiation will remain essential, but it may become insufficient to establish a durable competitive advantage. Industrial capabilities, regulatory expertise, manufacturing relationships and the ability to coordinate geographically distributed operations will become increasingly valuable. The companies that succeed will not necessarily be those that internalise the greatest number of activities or establish operations in the largest number of countries. They will be those that understand where critical capabilities reside, which dependencies are acceptable, which assets must remain under their control and how to assemble an economically coherent value chain across jurisdictions.

The next industrial revolution will not be won by the countries that invent everything, nor by the companies that attempt to manufacture everything. It will be shaped by those capable of identifying what must be controlled, understanding what can be accessed elsewhere, and assembling the right capabilities faster than their competitors.

In a fragmenting world, the ability to integrate may become the ultimate competitive advantage.