Beyond the Flat World - Part 4: Factory Asia: The Invisible Supply Chains Built by Flying Geese, Conglomerates, and Cash (Not Handshakes)

The dramatic restructuring of the global economy over the last half-century created three immense regional manufacturing hubs: Europe, North America, and Asia. While Europe built its dominant economic bloc through a dense framework of continuous political treaties and supranational legal institutions, Asia’s integration followed a radically different path: it was achieved primarily “through business.”

In Asia, the fundamental shift toward regional commerce was orchestrated by CEOs and massive industrial conglomerates (Keiretsu in Japan, Chaebol in South Korea) who ventured abroad, backed and guided by powerful state bureaucrats. This process created “Factory Asia,” a vast, tightly knit production platform that now churns out nearly half of all global goods, dominating the production of everything from clothing and shoes to the world’s most sophisticated electronics.

The story of Asia’s regional economic miracle is frequently described visually by economists as the “Flying Geese” model, where economic development spreads in a coordinated V-formation: a technologically advanced nation leads, followed by successive waves of less developed neighbors that absorb technology, capital, and manufacturing processes.

I. Japan Leads the V Formation (The Pioneer)

Asia’s economic rebirth began, as in Europe, in the wreckage of World War II, with significant help from the United States.

General Douglas MacArthur, head of the occupying force in Japan, was tasked with stabilizing the Japanese economy alongside its politics. The real turning point for Japanese industrial recovery came in the 1950s, fueled by the Korean War. The U.S. Army designated Japan as its primary rear base and supplier. Japanese ports were filled with U.S. destroyers and ammunition, and rebuilt factories churned out essential military supplies, including iron, steel, ships, and machinery.

The Role of the State and Conglomerates

Japan’s rapid recovery and subsequent international expansion were heavily influenced by the new Ministry of International Trade and Industry (MITI) and the powerful Finance Ministry. These state bureaucracies oversaw a selectively protectionist, pro-manufacturing, and export-oriented industrial policy.

This coordination was simplified by the structure of Japanese commerce: the powerful Keiretsu conglomerates (such as Mitsubishi). These massive corporate families combined banks, brand names, suppliers, researchers, and construction crews in a dense network linked by loans, shared board members, and ownership stakes.

A prime example is Asahi Glass, part of the Mitsubishi Keiretsu. Starting its foreign expansion in the 1950s, Asahi ventured first to India before targeting East and Southeast Asia. In the 1960s, it established flat-glass manufacturing in Thailand, quickly cornering the market for windows in new buildings and the growing local auto hub. Backed by government protection and its sprawling corporate network, Asahi became a global leader, but its Asia hub continues to dominate its sales and profits.

II. The Asian Tigers Follow (The Apprentices)

As Japan moved up the economic ladder—specializing in higher-value, technology-intensive production—it began outsourcing labor-intensive work to its neighbors. The “Asian Tigers” (Taiwan, South Korea, Hong Kong, and Singapore) were the first to catch the flying geese, absorbing Japanese capital, technology, and know-how.

Taiwan and South Korea

Taiwan quickly transitioned from an island focused on agriculture to a major manufacturer of sophisticated plastics, machines, and electronics. By leveraging foreign aid, trade, and an undervalued currency, Taiwanese companies became renowned master makers of goods for others (like Casio pocket calculators and Dell computers).

A similar pattern occurred in South Korea. Despite lingering tensions from the period of Japanese colonization, major Japanese players arrived in the late 1960s, eager for workers and customers.

• Joint Ventures: South Korean companies quickly partnered with them: Samsung teamed up with Toshiba (VCRs), and LG worked with Hitachi (black-and-white televisions) and Mitsubishi (electronic parts).
• Government Support: Authoritarian President Park Chung-hee actively cultivated local Chaebol conglomerates (like Samsung and LG), showering selected “strategic sectors” with tax breaks, cheap money, and loan guarantees.

III. China’s Rise: The Finishing School

The biggest and fastest success of this regional development path was China, which used hundreds of billions of dollars in foreign investment and local savings to fuel decades of double-digit economic growth.

After decades of political turmoil, China shifted its economic path in the late 1970s under Deng Xiaoping. It began opening its doors by creating Special Economic Zones—starting with Shenzhen—to attract foreign capital.

The initial investors were overwhelmingly regional:

• South Korea’s Samsung inked deals with local governments even before Seoul formally recognized Beijing. It built a massive complex in Huizhou, manufacturing stereos, monitors, and later smartphones.
• Taiwanese companies were pioneers, flooding in to set up warehouses for apparel, shoemaking, and electronics. By the turn of the century, Taiwan-based firms were managing the assembly lines that produced most of the world’s motherboards, scanners, and laptops.

Intraregional Trade Dominance

The back-and-forth flow of components, intermediate goods, and finished products around Asia grew dramatically. From 1990 to today, intraregional trade around Asia grew from a third to over 50 percent of all the region’s trade. This high level of internal trade now “far surpasses North America’s internal ties and closes in on Europe’s level of regional intensity.”

Asia achieved this dominance by concentrating production: it makes more than two out of every three phones, computers, audio equipment, and appliances bought worldwide.

IV. Asia’s Unique Model: Business First, Diplomacy Last

Asia’s powerful economic integration stands in stark contrast to Europe’s because it happened with “fewer diplomats.” The institutional and political framework for economic cooperation has historically been weak, relying instead on the intense commercial linkages forged by corporations.

Marginal Diplomatic Efforts

Regional organizations like the Association of Southeast Asian Nations (ASEAN) and the later Asia-Pacific Economic Cooperation (APEC) focused heavily on dialogue and political issues, with trade being an “afterthought.” While Asia signed over sixty free-trade agreements starting in the 1990s, most remain weak—they rarely moved beyond lowering tariffs and are often “riddled with carve-outs.”

Consequently, integration efforts relied almost entirely on the actions of firms. Companies and banks (backed by state subsidies and Keiretsu loans) built supply chains because the competitive advantage of proximity was overwhelming, even without robust regional treaties.

V. The Future: From Factory to Mall

Demographic shifts are rapidly changing Asia from a region of producers to a region of consumers. While many nations, including China, face shrinking workforces and rising wages, Asia is simultaneously home to nine out of every ten new entrants to the global middle class.

Asia’s consumers already possess more total buying power than European consumers, and they are rapidly catching up to North America. This immense and growing market means companies must be regionally positioned to capture this demand.

The integration spurred by Asia’s unique, business-led model has driven fast growth, unparalleled prosperity, and dazzling technological upgrades. By relying on flexible, corporate-driven supply chains rather than rigid diplomatic structures, Asia created a dynamic and resilient regional ecosystem, positioning itself strongly to dominate the next phase of global commerce as its vast population shifts from producers to consumers.