i卡會員

The sweeping effects of COVID-19 on the global economy are a wake-up call for industries to the possibility of broken supply chains as the new norm. Even if the pandemic becomes a thing of the past, the higher frequency of extreme natural disasters and the rising geopolitical tensions will continue to pose risks of supply chain disruptions. In the sixth national forecast and survey of technology trends in 2020, the Korean government prioritized readiness and responsiveness as crises are becoming day-to-day events. According to a 2022 report by the leading research firm IHS Markit, the disruption to container transportation networks, the lack of alternatives to critical materials in shortage, the soaring energy prices and local labor insufficiency due to strikes will continue to trouble supply chains.  

Not knowing when, where and how black swan events will happen, governments around the world are carefully assessing their competitiveness in strategic domains. Disadvantaged countries are seeking to enhance their industrial independence with government-led investments. The purpose is to avoid sudden disruptions to supply chains and the ensuing adverse effects on the domestic economy and industrial development. The countries at an advantage seek to maintain their indispensable positions in the international supply chains via development or subsidy programs, in order to prevent customers from fostering competitors for risk diversification. The push and the pull of these two forces will disperse the supply chain in strategic sectors. As a result, the supply chains will become more regional with more new entrants.

The semiconductor industry is a case in point. More than 20 countries have come up with development plans for semiconductors, with projects either announced or underway. It is estimated that at least US$700 billion will be invested by governments around the world over the next ten years. Based on the target of some degree of self-sufficiency in chips, most governments’ plans prioritize the addition or optimization of semiconductor manufacturing capabilities. Among the countries with ambitions in semiconductors are the longstanding leaders (e.g., Japan, Korea and the U.S.); China with its huge captive market, and those previously less involved such as Canada, India and Spain.   

Meanwhile, companies are also boosting their supply chain resilience to mitigate risks and prepare for the worst-case scenario. Even if the worst is yet to happen, such preparation remains meaningful. This is particularly true for industries that were previously more globalized, such as the information and communication; machinery, petrochemicals; textiles and garments; and metals and metal products. The typical measures in the face of risks are inventory increase, clientele/market diversification, and production sites dispersion. However, this may result in increased redundancy. To reasonably control costs, manufacturers need to enhance management efficiency by standardizing products, components and workflows or by harmonizing product quality across different production sites. This allows for the immediate backup of capacities across different sites within the same company. 

OEMs also need to carefully handle the mounting uncertainties going forward by introducing big data analytics. This helps them to identify demand fluctuations earlier and with higher precision and to construct a modularized supply chain as though made of LEGO. In the event of any supply chain issue, upstream activities and downstream customers may be directly connected with alternative suppliers able to serve the same functions, minimizing the changeover time within the chain. Supply chain modularization requires the standardization of components in each process. In addition, at least two suppliers are needed for each supply chain location, to reduce the cost of switching supply chain partners. To enable the preparation to be meaningful, even if the worst is yet to happen, part of the increased costs associated with supporting alternative suppliers will be transferred to existing suppliers by asking for price cuts. The incumbent suppliers lacking in bargaining power will have to live with the price cuts or else seek orders from other customers.

The reshuffling of the global supply chain for resilience and to prepare for the worst is both an opportunity and a challenge for Taiwanese manufacturers. On one hand, everybody wants a plan B, and so the supply chain will become more open. The entry barrier for working with large customers will be lowered, which will help small players or startups in Taiwan with technological prowess to make inroads in the international market. The rapid development of Open-RAN for 5G is a good example. On the other hand, Taiwan’s current position in the global supply chains will also be affected. Whilst the possibility of being replaced by competitors in the short term is low, customers will inevitably continue to seek lower prices or invest in capacities in less familiar locations. In sum, the competition in the future will be for more than just the market. The key is to optimize the combination of market, products and production sites for resilience so as to prepare for the worst. Taiwanese manufacturers should tread carefully.