Will Taiwan remain the key player in the semiconductor supply chain?

Taiwan, a country around seven times smaller than the United Kingdom with a population of 23.5 million, produces 60 percent of the world’s most sophisticated semiconductors. 

The semiconductor is the material microchips are made from. Microchips are the raw material of almost every tool of modern life; the digital economy would collapse without them. And Taiwan, along with Korea, accounts for around half of the world’s chip fabrication capacity. 

So how did the small East Asian country, which until just a few decades ago was a tea and sugar plantation, transform itself into a critical link in the global supply chain? The answer, says Xavier Ferràs from Esade’s Department of Operations, Innovation and Data Sciences, lies in smart industrial policy and the foresight of one man: Wu Maw-Kuen. 

Smart investment  

“Wu Maw-Kuen is the father of Taiwan's technological miracle,” explains Ferràs. “He advised concentrating efforts on the development of industrial process technology, taking advantage of basic research being carried out in other countries, such as the US. 

“In 1973, the Industrial Technology Research Institute (ITRI) was founded, and intensive promotion of high-tech sectors began. At that time, the fledgling Taiwanese industry was made up of small and medium-sized companies, without the muscle to undertake R&D projects. The ITRI deployed lines of applied research, together with the companies. Today, the 40 kilometers from Taipei to Hsinchu make up a gigacluster of R&D and advanced manufacturing of silicon chips.” 

Currently celebrating its 50th anniversary, ITRI says it has pioneered the integrated circuit development industry and delivered its R&D results to global industries. The organization has set up or incubated companies including UMC, Taiwan Mask Corp, Epistar Corp, Mirle Automation Corp, Taiwan Biomaterial Co and, of course, the Taiwan Semiconductor Manufacturing Company Limited (TSMC). 

Dominating the market 

TSMC is the world’s leading semiconductor corporation, taking in over half of the sector’s global revenue. 

“TSMC’s current situation is one of astonishing market dominance,” says Enrique Rueda-Sabater, a former senior fellow at EsadeGeo. “It accounts for 56% of the revenue of contract semiconductor manufacturers.  

“The centrality of TSMC in the supply chains of many producers of electronics is also remarkable. Its clients — some of them relying on the company exclusively — notably include Apple, which accounts for one-quarter of TSMC’s revenue. The Taiwanese manufacturer is also a major supplier — directly and indirectly — of virtually all major automobile manufacturers.” 

And, he adds, it’s widely believed that TSMC chips are an essential element of the supply chain for defense and national security suppliers in many countries, “adding to the major economic significance of its commercial position an additional dimension of great sensitivity.” 

The battle for dominance  

While Taiwan extends its hold over the market, China and the US are racing to catch up. China has more than doubled its share of global chip production over the last decade and, last year, the US announced it was investing $280 billion into its domestic chip industry. 

“The Beijing regime is not interested in coming into conflict with the US,” says José María de Areilza, professor in Esade’s Department of General Management and Strategy. “But China’s Xi Jinping is a more assertive and nationalistic leader than his predecessors and can use confrontation with an external enemy to add additional legitimacy.  

“He has turned up the pressure on Taiwan, a democracy with a thriving economy that challenges the Chinese communist model and a strategic country for its decisive influence in the semiconductor industry.” 

Against this backdrop of global political turmoil and the strategic battle for silicon dominance, who will emerge as the victor? According to Xavier Ferràs, if history can teach us any lessons the race is still wide open. 

Lessons from the past 

“I started my professional career in 1993, in the semiconductor research group of the extraordinary Department of Electronic Engineering at the UPC,” he says.  

“At that time, the National Microelectronics Center was inaugurated in Bellaterra, with one of the best white rooms for experimentation with electronic chips at the time. There was a benchmark cluster in consumer electronics in Barcelona, there was talk of Silicon Vallès. We had all the ingredients: talent, science and industry. We were in pole position. Today, little remains of that cluster.  

“We deindustrialized and impoverished ourselves. We thought we had reached the top, forever. But we weren't able to tackle the next curve of progress: the high-tech economy. The cluster was a mirage, just a set of disconnected agents.” 

No exemptions 

And for Rueda-Sabater, connection is key to a successful, undisrupted supply chain. Rather than focusing on dominating the market, we should prioritize stability.  

“There are many potential ‘tipping points’ that could disrupt the supply of products and services that we increasingly consider essential to daily activity,” he says. 

“These range from geopolitical tensions to natural catastrophes to terrorist transport disruption — and more. The pervasiveness of these vulnerabilities means that virtually no enterprise, or country, is exempt.”