Domestic Capacity Building is No Easy Feat

October 17, 2022

From Covid-19 and labor shortages to sanctions, tariffs, and energy shortages, global supply chains are being tested on multiple fronts. The risk of sourcing from far-flung locations is being priced into boardroom decisions at a much higher premium than anything seen for decades. Just-in-time has transformed into just-in-case. 

In response to these challenges, companies are geographically realigning their supply chains to be more regional or hemispheric. In North America’s (relatively) free market, companies are typically left to their own devices on whether to integrate or not. But this new reality has empowered governments to proactively offer incentives to companies to expand their domestic supply chains more rapidly.  

Surprisingly, though the semiconductor was invented in the US, only around 12% of chips are manufactured domestically. Many products that are made in the US, from washing machines to automobiles to LED lights, depend on semiconductors to make them work. Never was it more apparent that US manufacturing depends on chips than the sight of thousands of new cars sitting idle in parking lots waiting on the essential part. As recent as July 2022, GM reported nearly 100,000 cars were waiting on semiconductors.  

In what some would say was a delayed response, in August the US Congress passed the CHIPS and Science Act into law, providing billions of dollars to promote domestic research, development, and manufacturing of semiconductors. Without these incentives, it’s unlikely that many of the recent chip plant announcements — from the $29 billion Intel facility in Ohio to the $17 billion Samsung plant in Texas — would be economically feasible.  

Alas, decoupling from the rest of the world is easier said than done. Depending on your product requirements, your only option might be to import from overseas vendors. For example, nearly 70% of the world’s supply of neon, integral to the production of integrated circuits in semiconductors, is (or was) made in Ukraine as a byproduct of Russian steel production. This example radiates across various industries and reminds us of a simple notion: if one link in the supply chain is broken, the entire system collapses.  

Written by Didi Caldwell

This article first appeared in the October/November 2022 print edition of fDi Intelligence. View a digital edition of the magazine here. 

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