Over the past three decades, digital technology has played a pivotal role in shaping a highly interconnected global economy, breaking down traditional barriers in markets, trade, and production. Complex products such as automobiles, smartphones, semiconductors, and industrial robots are now typically manufactured through coordinated efforts across multiple countries. However, recent challenges—including the COVID-19 pandemic, an energy crisis, labor shortages, and escalating geopolitical tensions—have exposed vulnerabilities in this globalized framework, prompting companies to rethink strategies around resilience alongside cost and efficiency.

This reassessment has ushered in a shift from fully globalized production toward a more regionalized form of globalization. While the initial digital revolution enabled companies to orchestrate intricate international supply chains, the emerging digital transformation is fostering the localization of manufacturing closer to end consumers. This trend is supported by a network of digital connections involving software, data, and artificial intelligence (AI).

Initiatives such as the World Economic Forum’s “lighthouse factories” — over 200 smart manufacturing sites worldwide — illustrate the potential of this approach, reporting approximately 40% increases in labor productivity and halving the time needed to implement production lines. The scalability of these improvements hinges on the ability of machines, factories, and companies to share data and replicate solutions across borders. Unlike physical infrastructure, digital assets like software and AI tools can be developed in one location and deployed in many others, provided interoperability and data access are ensured. This allows factories to adopt proven designs tailored for local needs, disseminate best practices, and enter new markets without starting from scratch.

The drive toward shared standards remains the most effective strategy for achieving widespread compatibility, enabling different systems to collaborate without sacrificing their unique architectures. A recent collaboration between European and Japanese automotive industrial networks exemplifies this balance, linking operations while preserving their distinct technological frameworks.

Despite these advances, geopolitical dynamics are increasingly fragmenting the global digital landscape. The growing divide between the United States and China in technology sectors has led governments to intensify control over critical technologies, data governance, and supply chains through export restrictions, data localization mandates, and divergent cybersecurity policies. These measures create new obstacles to cross-border connectivity, complicating the dissemination of technological innovations and hindering international trade and collaboration.

Experts warn that if such trends persist, the world could face a “digital iron curtain,” characterized by hardened digital borders that slow technological progress and restrict the free flow of ideas and commerce. Europe, situated between these two dominant technological powers, stands at a critical crossroads with an opportunity to act as a global intermediary. It can position itself as a trusted hub where companies, technologies, and data from various regions interoperate effectively.

To fulfill this role, the European Union must foster an environment that prioritizes interoperability and innovation over restrictive regulation. Expanding the digital single market and promoting common standards or open interfaces through industry alliances and public-private partnerships are essential steps. Additionally, making interoperability a central theme of economic diplomacy—such as through emerging digital trade agreements with Pacific economies including Japan, Australia, and Canada—could serve as a model for integrating diverse digital ecosystems.

Ultimately, the global challenge lies in whether increased resilience will be achieved through open connections and collaboration or through more isolated and protective systems. The trajectory of this balance will shape whether the emerging regionalization of manufacturing and technology can continue to operate within a connected global framework.