Global supply chains are exposed to similar risks as those faced by domestic supply chains and additional risks that are more global. The table provides a non-exhaustive list of the various types of risks faced by multinational companies. Natural disasters, geopolitical events, epidemics, or terrorist attacks can shut down production lines because of a lack of parts inventory. This is exactly what happened to some semiconductors during the recent COVID-19 impact on the global economy.
In the case of semiconductors, they are located in Asia, creating a risk of geographic concentration. Semiconductor components are lightweight, modular, and high-value-added products. This combination lends itself to a heavily traded global value chain. But high barriers to entry also make the industry entrenched. While the United States designs many advanced chips, production is highly concentrated in South Korea and Taiwan. However, the United States, mainland China, and other regions also manufacture some chips and electronics. Economies of scale and existing advantages leave very little room for semiconductor production to shift independently. But national security and competitiveness concerns could lead governments to take action, potentially shifting an estimated 11 to 22 percent of trade flows. Furthermore, the semiconductor industry has consolidated over the past few years, so alternative sources are limited. As a result, fewer chip manufacturers are sourcing to companies, and during the pandemic, some could not keep up with demand.
Question 2:
What progress have we made in the past two years? What will be the next step to recover from this disruption?