“Planning is bringing the future into the present so that you can do something about it now.” ― Alan Lakein, Author
On February 28, 2023, the US Federal government announced that semiconductor manufacturing companies who are seeking a slice of the pie in 40$ billion dollars of new federal subsidies for the production of semiconductor chips domestically should first ensure affordable childcare for its workers, limit stock buybacks and share excessive profit with the government. Read about the news here.
So, what is this news all about and why is the US firstly pushing for semiconductors chips to be manufactured domestically?
In one of our earlier blogs, we discussed how Taiwan faces geopolitical threats from China and one of the things which can be done is to examine alternative sites outside of Taiwan in case there is a disruption in the manufacturing process. To combat this risk, the United States passed an act called The Creating Helpful Incentives for producing semiconductors (CHIPS and Science Act, 2022) which provides roughly 200 billion dollars to boost domestic semiconductor manufacturing in the US. These incentives are there to ensure that semiconductor chip-making companies make the United States a manufacturing hub and subsequently reduce the dependency on Taiwan as it is a world leader in the manufacture of semiconductor chips.
One company, the Taiwan Semiconductor Manufacturing Company (TSMC) which is one of the world’s largest manufacturers of semiconductor chips is discussed in this blog where we will be examining the risks in the selection of an alternate site. TSMC has more than 50 percent market share across the world in terms of the global foundry market (which are basically factories given contracts to make chips designed in other countries). Read about the news here.
Almost all factories of TSMC are located in Taiwan creating a high-risk situation in case China attacks or blockades Taiwan.
Alternative Sites are a critical aspect to ensure Business Continuity and this blog in the above context will examine the various factors which can impact the decision to select an alternate site for the company operations.
GEOPOLITICAL RISKS ARE A THREAT TO BUSINESS CONTINUITY
“Businesses are increasingly subject to disruptions. It is almost impossible to predict the nature, time and extent. Therefore organizations need a proactive approach equipped with a decision support framework to protect themselves against the outcomes of disruptive events”- Navi Sahebjanima, Researcher
TSMC has invested as per reports a whopping 40 $ billion dollars for a semiconductor chip manufacturing facility near Pheonix, Arizona, USA. This has been done with a view to diversifying its manufacturing sites and also with an eye on China since any major attack on Taiwan could basically cripple the world’s semiconductor supplies. This also aligns with the goal of the United States to reduce its risk factor with regard to China choking its semiconductor chip supplies. There is a lot at stake for the United States in this project since if the plant does not turn out to be viable for operations it will be a major setback to the goal of the United States to reduce the risk with regards to China for semiconductors chips.
So does your business have an alternative site and are you aware of the various parameters which can be considered by you before selecting a secure alternate location?
SOME PARAMETERS BEFORE SELECTING AN ALTERNATIVE SITE
“Someone’s sitting in the shade today because someone planted a tree a long time ago.” — Warren Buffett, investor
1. RISK ASSESSMENT
A Risk Assessment is essential to be done before selecting a particular location. Issues like Environmental risks, political situations, etc are factors that need to be examined. It is also important to consider when selecting a particular location whether there are particular costs involved like strict labor laws depending on the location. A lot of aspects need to be considered before zeroing in on a particular location.
2. WORK CULTURE CHALLENGES
The similarity of work cultures is critical. If your organization opens a facility in a country or a new location it is important to ensure there is a synchronization of work cultures. If the domestic employees in the new location are not used to a work culture as per the strategy of the company then the operation of the facility will be difficult. It is entirely possible that such a rigorous work culture might be the reason for TSMC’s success in Taiwan however replicating it in a country that does not possess a similar work culture could be challenging. One more example could be where employees in a particular country are known to follow their manager’s orders without questioning however some countries do not disapprove of challenging their manager.
3. SHORTAGE OF SKILLED WORKERS
To run an organization, skilled labor is a critical component of its operations. Some labor laws may insist on hiring local citizens in the organization and not immigrants. However, if the local citizens are not skilled sufficiently they cannot work in the organization for some time. The local citizens will have to be trained which will add to costs. It is unlikely considering the political situation in a particular country will allow skilled immigrants access to jobs at the cost of their citizens.
4. COMPLIANCE
As we saw earlier in this blog, companies that seek United States government funds would now need to work on providing affordable child support, preventing stock buybacks, and sharing profits with the government. The above policies whether they align with company policy need to be examined before selecting a particular country or location. Companies may have to consider all of the above factors into consideration before taking a decision.
ALTERNATE SITE TO MAINTAIN BUSINESS CONTINUITY
“An hour of planning can save you 10 hours of doing.”- Dale Carnegie, American writer
This in no way means that having an alternative site is not feasible and cannot be used to maintain business continuity. It is just that more research must be done on which country/ location is more suitable to set up an organization. The decision depends upon the country having a similar work culture, low labor costs, well-skilled workers, etc. If these aspects are taken care of, then Business Continuity is maintained otherwise operations may suffer a disruption. Not necessary to have an organization in a specific country, alternative locations can also be considered if the only end objective is to secure Business Continuity and cut costs. Alternative locations can be within the country also however the above parameters will still need to be examined.
CONCLUSION
In the end, it is a positive step that the threat to Business Continuity has been identified in terms of geopolitics that is Taiwan, and that reinforces the importance of alternate sites to secure business continuity. However, when choosing an alternate site, it is critical to do a thorough risk analysis of the country/location before selecting. Imagine investing billions of dollars in a factory project only to find the country/location is not viable to set it up. What would you do now?
Gorisco has a wide range of experts who have various solutions to help organizations mitigate their risks and solve their problems.
At Gorisco, our motto is 'Embedding Resilience' and we are committed to making the organizations and their workforce resilient. Reach out to us if you have any queries, clarifications, or need any support on your initiatives.
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