How TSMC’s overseas expansion is securing the future amid rising geopolitical tensions
Taiwan Semiconductor Manufacturing Company’s (TSMC) plans to expand its manufacturing outside of Taiwan has generated concerns from shareholders, with President Mark Liu being asked to explain the decision to invest $40 billion in the United States, build another in Japan and consider having one in Germany. However, Liu defended the move, saying that it was crucial for TSMC to globalize to maintain and expand its technology and manufacturing leadership, especially given the geopolitical tensions arising from competition between the United States and China. Rising global pressure has required TSMC to determine its position in the tech supply chain to avoid catastrophic supply chain disruptions.
Reasons behind TSMC’s overseas expansion
TSMC’s decision to invest in an Arizona factory in the US came after customer requests in 2018 for the company to make US capacity available for sensitive infrastructure and defense-related products, triggering the decision to expand overseas. According to Liu, globalization is a key factor in keeping TSMC’s position as a world leader in technology over the next 10-20 years. Without efforts to globalize, Taiwan would not have the necessary talent or research and development to maintain its position as a global technology leader in the future.
Geopolitical tensions driving TSMC’s overseas expansion
This year, geopolitical tensions concerning China have centered around a growing military intimidation campaign against Taiwan. This has led to concerns as over 90% of the world’s most advanced semiconductors are manufactured in Taiwan, and the country fears catastrophic supply chain disruptions should China ever attack Taiwan. TSMC’s expansion overseas represents less than 10% of its total capital investment. Chairperson CC Wei confirmed that the lion’s share of the capacity of N3, the most advanced process technology currently in mass production, as well as the next two generations, N2 and N1.4, will remain in Taiwan.
TSMC’s cautious optimism
Liu is optimistic that governments in both the United States and Germany will support TSMC with subsidies and supply chain support needed to make its overseas factories profitable. In Germany, negotiations for TSMC’s plan to build a manufacturing plant in Dresden are ongoing, and while there were some gaps in Germany’s supply chain and labor, Berlin promised rapid capacity building. In the US, Liu said the Commerce Department was open to approaching TSMC’s concerns. As long as TSMC does not violate the national security of the United States, it can accept subsidies. According to Liu, a part of the high costs in the United States is because there has been no investment in the production of chips in the country. However, once this effort reaches scale, these costs will start to come down.
Summary: TSMC’s overseas expansion amidst rising geopolitical tensions
Taiwan Semiconductor Manufacturing Company (TSMC) recently announced that it plans to diversify its manufacturing beyond Taiwan; a critical step in securing the future of the world’s leading contract chipmaker in the face of rising geopolitical tensions. During TSMC’s annual meeting, shareholders expressed concern about the company’s overseas expansion plans. However, the President, Mark Liu, defended the company’s move, stating that globalization is a necessary step in maintaining leadership in technology and manufacturing amid rising geopolitical tensions. This has resulted from the competition between China and the United States for tech supremacy that has forced TSMC to consider its position in the global tech supply chain to avoid catastrophic supply chain disruptions. Despite shareholder concerns, Liu’s comments indicate that TSMC’s overseas expansion plan represents only a small fraction of its overall capital investment. The Taiwan semiconductor industry’s move towards the US, Germany and Japan is necessary for keeping its position as a world leader.
Expanding on the topic: Ensuring Supply Chain Security
Along with TSMC’s overseas expansion plan, the broader context of supply chain security has come to the forefront, emphasizing its importance. Although it has always been a critical aspect of international trade, it has gained greater importance in light of the ongoing pandemic and its impact on global supply chains, which has led to shortages in essential products. Countries began to close their borders and create trade restrictions that have significantly disrupted supply chains. Meanwhile, countries such as the US have begun to focus on reshoring their manufacturing facilities to gain greater supply-chain visibility and control, distinguishing essential goods from non-essential ones to be produced within borders.
China, often called the “world’s factory,” controls nearly 80% of global semiconductor production supply chains as the vast majority of the world’s semiconductor production facilities are located in the country. This explains why Taiwan is concerned about the possibility of an attack from China, which would result in severe supply chain disruptions. Therefore, diversifying manufacturing locations is a prudent move for TSMC.
In conclusion, while geopolitical tensions are driving TSMC’s decision to expand overseas, it also highlights the broader context of supply chain security. Companies need to think beyond the traditional perspective of building long, complex global supply chains, with multiple interconnected suppliers that present risks of breakages and shortages. Instead, as risk is distributed more evenly and geography is diversified in the supply chain, companies can better manage these risks to ensure a continuous supply of goods and services. Therefore, TSMC’s decision to move its manufacturing facilities is necessary not only for their operations but also essential for global supply chain resilience.
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TSMC defended its drive to diversify manufacturing beyond the company’s native Taiwan as a key step in securing the future of the world’s largest contract chipmaker amid rising geopolitical tensions.
Taiwan semiconductor manufacturing company‘s overseas expansion plans sparked concerns at home, with shareholders challenging management at its annual meeting on Tuesday. They asked President Mark Liu to explain the rationale behind his decision to invest $40 billion in two manufacturing plants in the United States, build another in Japan and consider one in Germany.
Liu said the company needed to globalize to maintain and expand its technology and manufacturing leadership. The initial decision to invest in an Arizona manufacturing facility was triggered by customer requests in 2018 for the company to make U.S. capacity available for sensitive infrastructure and defense-related products.
“Going to the US is not only a negative, it’s not just about additional costs, but it’s a long-term development direction for TSMC,” he added. “How can we maintain our position as a global technology leader in the next 10-20 years? This has to do with whether Taiwan has enough talent, whether Taiwan has enough R&D. We must not assume that our current success will continue into the future.”
Liu’s comments marked the first time geopolitics had been the focus of attention at an annual meeting of TSMC – a shift triggered by the rising competition between the United States and China. Their battle for tech supremacy is piling pressure on the Taiwan-dominated global tech supply chain to take a stand, while China is responsible for a growing military intimidation campaign against Taiwan.
There are fears of catastrophic supply chain disruptions should China ever attack Taiwan, with more than 90% of the world’s most advanced semiconductors being manufactured in the country. However, Taipei has rejected pressure from the United States and other governments for TSMC to move chip production outside Taiwan.
The capacity that TSMC is building overseas represents less than 10% of its total capital investment. CC Wei, managing director, reassured shareholders that the lion’s share of the capacity of N3, the most advanced process technology currently in mass production, as well as the next two generations, N2 and N1.4, will remain in Taiwan.
Liu expressed cautious optimism that governments in both the US and Germany would support TSMC with subsidies and supply chain the support needed to make its overseas factories profitable.
In ongoing negotiations over the company’s plans to build a manufacturing plant in Dresden, “the feeling is not bad,” Liu said. He added that there were some gaps in Germany’s supply chain and labor, but Berlin promised rapid capacity building.
In the US, he said the Commerce Department was open to approaching it TSMC’s concerns on some preconditions for subsidies that foreign chipmakers see as vital to closing the cost gap with manufacturing plants in Asia.
“Their goal is to make these investments in the United States competitive. So as long as we don’t violate the national security of the United States, they will be able to accept,” Liu said. He argued that part of the high costs in the United States was due to the fact that there had been no investment in the production of chips in the country.
“Once this effort reaches a certain scale, these costs will start to come down,” he added.
https://www.ft.com/content/3d74abd1-fbea-4953-a044-6e605807dbc7
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