IBUS 410

Team Final Project: Semiconductor Chip Shortage

Will Davis, Tristan Kenagy, Gracie Rice, Yeji Kim, Julian Longerich
11/29/2022
 Group 6:

● Gracie Rice, Business Administration, Senior, g911r926@ku.edu

● Tristan Kenagy, International Business & Marketing, Senior, tkenagy7@ku.edu

● Yeji Kim, Finance, Junior, yeji1004@ku.edu

● Julian Longerich, Organizational Leadership & International Business,

julianlongerich@ku.edu
Abstract
Our team decided to research the global shortage of semiconductor chips and help answer the
question, How are global supply chain issues, specifically with semiconductor chips, affecting
international businesses? This is an important issue that we should care about because the
shortage is affecting some of the biggest industries to date, including tech and automotive.
Semiconductor chips are the core to the world’s most advanced systems and we largely depend
on them for the majority of our every day uses. In our internet-connected world we are
completely dependent on energy and the chips themselves; they influence everything from our
cars and cellphones to national security. The frameworks we felt were the most relative while
researching this were, globalization and regional economic integration. Our main argument is
that becoming more self reliant and producing more of our own semiconductor chips would
decrease the likelihood of more incidents like these happening again because we would not have
to rely as much on other countries to get them to us. We also argue that regional integration and
having stable healthy relationships with the main producer countries, could help make trading
these chips much easier and more efficient.

Introduction
Semiconductor chips have had an increase in demand with the constant growth of innovative
technology unveiling each year. These chips can be found in things such as phones, laptops,
digital dash displays in cars, and even the U.S. National Security System. These chips have
always had a high demand throughout multiple industries, but with the recent 2020 Covid-19
pandemic, production of these chips slowed down almost to a complete halt which only drove up
their demand. Production factories are beginning to expand out of their most popular
manufacturing country of china into the U.S,Taiwan, and some parts of Japan. This solves issues
as well as creates them by forcing outside countries to pay a hefty import tax with the price of it
varying on the good standings of each country. Our group argues that there should be self-reliant
production for vehicles and that there needs to be stronger relationships built between the
supplying country and the consuming country to create a fair trade for all parties. Throughout
this report we will be describing the situation and problems that follow, the arguments we make
towards the case, and how we see the issues getting resolved.

Description
A shortage of semiconductor ships happened in March 2020 when the automakers were forced to
shut down plants and stop supplier orders. At the same time, with the increase of people working
remotely, the electronic industry saw demands rise for products such as cell phones, TVs, and
home appliances. It was mainly due to stay-at-home orders imposed on people during the
COVID-19 pandemic. The electronic industry immediately showed interest in paying more for
the silicon wafer, which allowed them to keep up with the demand much better than the
automobile industry. In addition, chipmakers were more incentivized to keep producing chips for
electronic products instead of cars because they earned a higher profit margin, making them
willing to invest in more capacity. When the auto industry began to see an increase in demand
again through online orders in the fall of 2022, it resulted in significant shortages for companies
such as General Motors, Honda, and Toyota up to this day. According to Alix Partners, the
automobile industry lost $210 billion in revenue due to delayed new car sales resulting from the
shortage of chips. Simultaneously, global vehicle production fell by more than 14 million units
between 2019 and 2020.

Before Covid, automaker's inventory of car models was 70-80 days which fell to as low as ten
days worth. When consumers decided to order a new car through a dealership, they had to wait,
in some cases, for several months before their new car was delivered to them. To avoid huge
losses, automakers decided to first install semiconductors into vehicles that were more profitable
such as full-size cars and SUV’s. With less demand, it led to an increase in new vehicles of
around 12 percent and 42% for used-car prices, according to KPMG. Before moving on to
analyzing the issue and finding ways to improve the global supply chain of semiconductors in
the future, it needs to be said that the just-in-time delivery of parts approach in the automobile
industry was another major cause for shortages as well as production problems at multibillion-
dollar chip factories around the world.

Review
With the current situation, shortages of semiconductors could last for vehicles until the end of
2023, meaning that the projected demand can still not be met for an additional 12 months. One
way to solve this issue is by taking advantage of regional integration. According to the
Semiconductor Industry Association, the US only accounted for 12% of the world’s
semiconductor chip production in 2020, which is a decrease of 25% compared to the year 1990.
China, South Korea, and Taiwan account for producing the majority of chips necessary to build
vehicles and electronic devices. It comes as no surprise that critics arise in the US that
production needs to be moved domestically or at least closer to the own country. The US senate
approved $52 billion in funding to boost the semiconductor industry, which could significantly
increase chip production in the USA. However, data shows that it will take time until the ship
capacity for the auto industry catches up with the demand, which means that the US needs to
continue to diversify its portfolio in ordering chips across the world to avoid being dependable
on single suppliers and distant countries such as China and Taiwan. However, it needs to be
ensured that the US remains in a good relationship with the cooperating countries to be
guaranteed supply of the chips required to meet demand in the home country.

With a yearly increase in demand and sophistication levels of the chips needed to power new
technology (advanced driver-assistance systems, for example), moving production closer to
countries where highly skilled workers are available makes sense. The US and Germany are two
countries that have a labor force available to meet this requirement. A great example of
following this procedure is Samsung which recently announced that it would build a $17 billion
chip-making plant in Texas to avoid future shortages. Lastly, the automobile industry, as well as
the electronic industry, needs to move away from the idea of Just-in-time manufacturing. I
understand that keeping inventory low is more cost-efficient. However, it does not consider the
possibility of an unexpected shortage through events such as the Covid 19 pandemic.
Arguments
We argue that the most useful solution of the semiconductor shortage is to be self-reliant in
production of semiconductors, especially for vehicles. TESLA is one of the successful
companies that is relevant with this point of view. In doing this, the U.S. could be more efficient
in creating technology and not have to depend on other countries as much.
Only 12% of the world’s semiconductors supply are made in the U.S, while the others are all
made in other countries. While strategy of internalizing supply chain for semiconductors is
essential, ‘Moore’s Law’, theory that the performance of semiconductor integrated circuits
double every 18 months and emphasizes that it is not easy to pursue technology highlights more
crucial thing.

As described in this report and in the perspective of international business and trade, the U.S.
should build more stronger relationships with semiconductors suppliers like China, Taiwan, and
South Korea, in this order, they are the leading producers of the semiconductor chips.
Strong relationships with these countries should strengthen semiconductor manufacturing in long
term. Regional integration is also helpful because it could help create those strong relationships
and also make trading cheaper and more reliant. We can also move the manufacturing facilities
closer to the USA to prevent supply issues that could occur if unexpected events, such as
COVID, disrupt the typical supply chain. We could also tie our topic to the foreign direct
investment strategy. It will allow us to gain more ownership in a business in one country by an
entity based in another. When entering new countries, it will be essential for us to discuss
national differences and how to enter new foreign markets.

Conclusion
The COVID 19 pandemic played a large role in causing the shortage of semiconductor chips by
disrupting the global supply chain. This shortage in turn has negatively affected some of the
worlds largest industries and companies. This shortage has been going on since 2020 and is
expected to continue throughout the next year. It is important to adapt to these trends and
discover new ways to accommodate and keep up with the increasing demand of semiconductor
chip- needed technology.

References
 J.P. Morgan Chase. (2022, August 11). How to begin building a credit history.
Jpmorgan.com; J.P. Morgan Chase.
https://www.jpmorgan.com/insights/research/supply-chain-chip-shortage

Why The Chips Are Down: Explaining the Global Chip Shortage | Jabil. (2021).
Jabil.com. https://www.jabil.com/blog/global-chip-shortages.html

Why is there a Chip Shortage? The Semiconductor Supply Chain, Explained. (2021).
Nasdaq.com. https://www.nasdaq.com/articles/why-is-there-a-chip-shortage-the-
semiconductor-supply-chain-explained

Tammy (Tamera) Max. (2022, August 19). Understanding the Current Global
Semiconductor Shortage, Preparing for the Future. IHS Markit; IHS Markit.
https://www.spglobal.com/engineering/en/research-analysis/understanding-the-
current-global-semiconductor-shortage.html

Alisa Priddle. (2021). What happened With the Semiconductor Chip Shortage-and How
and When the Auto industry Will Emerge
https://www.motortrend.com/news/automotive-car-industry-semiconductor-chip-
shortage-reasons-solution/

Ondrey Burkacky. (2021). Coping with the auto-semiconductor shortage: Strategies for
success https://www.mckinsey.com/industries/automotive-and-assembly/our-
insights/coping-with-the-auto-semiconductor-shortage-strategies-for-success