Model Answer

The global semiconductor supply chain is highly interdependent and concentrated, with production dominated by a few large players. This structure has evolved over decades, bringing innovation and cost savings, but also creating vulnerabilities.

Market Concentration: A handful of companies control more than 50% of the global semiconductor market. Companies such as Samsung, Intel, and Qualcomm are major players in chip production, making the supply chain dependent on a few firms. This concentration limits competition and increases the risk of disruption if any of these companies face operational challenges.

Geographical Division: Different countries and regions specialize in distinct parts of the semiconductor supply chain, contributing to global interdependence. For instance:

• The USA and Germany are the leading exporters of raw materials used in semiconductor manufacturing.
• Taiwan and South Korea dominate the production of chips, with companies like TSMC (Taiwan) and Samsung (South Korea) leading the way.
• China is the largest consumer of semiconductors for its electronics, creating further dependencies on global production.

Collaboration in R&D: The semiconductor industry is one of the most research and development-intensive sectors. Major firms often collaborate to drive innovation. For example, ASML, Intel, Samsung, and TSMC teamed up to develop extreme ultraviolet (EUV) lithography, a technology crucial for producing advanced chips.

Risks and Vulnerabilities in the Semiconductor Supply Chain

Several risks and vulnerabilities stem from the interdependence and concentration of the semiconductor supply chain.

Natural Disasters: The geographic concentration of manufacturing in regions like Taiwan and the USA exposes the supply chain to disruptions caused by natural disasters. For example, in 2021, a severe winter storm in the USA and a drought in Taiwan led to significant supply shortages.

Geopolitical Tensions: Countries with strategic control over semiconductor technologies may impose export controls, impacting global access. In 2023, the US, Japan, and the Netherlands imposed restrictions on semiconductor equipment exports to China, raising concerns over supply chain stability.

Global Pandemics: The COVID-19 pandemic highlighted how pandemics can disrupt both supply and demand in the semiconductor industry. Factory shutdowns and surges in demand for electronic devices created significant supply shortages.

Conclusion

While the specialized and concentrated semiconductor supply chain has delivered substantial value, it also presents risks that need to be managed through policies that balance the benefits of scale with resilience to disruptions. The vulnerabilities, such as natural disasters, geopolitical tensions, and pandemics, must be addressed to ensure continued stability and growth in this critical industry.

Model Answer

1. Technology Transfer and Investment in Education East Asia’s semiconductor sector benefited greatly from the transfer of technology and investments in education. Taiwan, for example, leveraged technology from the Radio Corporation of America (RCA) through the Industrial Technology Research Institute (ITRI). The ITRI acquired advanced semiconductor technology and recruited engineers to further develop it, laying the foundation for Taiwan’s thriving semiconductor industryovernment Policies and Industrial Support** Government policies in East Asia, particularly in countries like South Korea and Taiwan, have played a vital role in nurturing the semiconductor industry. The Korean government, for instance, supported exporting firms with loans, which enabled Samsung to rise as a leader in the Dynamic Random Access Memory (DRAM) market.

2. al Formation The semiconductor industry demands heavy investment in research and development (R&D). East Asian nations like South Korea and Taiwan have been able to channel their high private savings rates into these industries, benefiting from disciplined fiscal policies and substantial national savings .

3. Entreprenion Visionary entrepreneurs were key to the semiconductor industry’s growth in East Asia. Samsung’s Byung-Chull Lee, for example, recognized the potential of DRAM chips and focused on them, driving the company’s dominance in the memory chip market .

4. Economic Response  The geopolitical threats faced by Korea and Taiwan, such as tensions with North Korea and China, spurred a unified push towards rapid industrialization, particularly in the semiconductor sector. These threats created a sense of urgency and helped drive the industry’s development .

5. Avoidance of Protectionism he U.S., which adopted protectionist measures, East Asian countries remained open to competition and technology transfer. This openness contributed to the sustained growth of the semiconductor industry in the region .

East Asia’s semiconductor industry, drive factors, has become a cornerstone of the global supply chain, helping the region solidify its role as a manufacturing powerhouse.