International Business (BA5308) MBA-E – Section (F/G/H) – Fall 2023

Case Study # 2

Global Trade in Semiconductors

The global semiconductor industry is a high-tech colossus. The microprocessor and
memory chips that the industry produces are to be found everywhere, from computers,
to telecommunications equipment, to mobile phones, automobiles, aircraft, and
industrial machinery. The industry churns out about a trillion chips every year, or 128 for
every person on the planet. There are over 25 chips in each iPhone, whereas an
electric car can have 3,000 of them. In 2019, the industry generated around $412 billion
in revenues. When the COVID-19 pandemic swept the world in 2020, demand for
semiconductors didn’t fall with the resulting economic recession—it jumped to $435
billion as people worked from home and spent more time playing video games or
streaming shows. Looking forward, the fusion of high-speed 5G communications
networks, the internet of things (IoT), and cloud computing technology will continue to
drive strong demand growth for semiconductor chips far into the future.

American firms have long held a strong position in this business. The industry was born
in Silicon Valley, California, in the 1960s, with Fairchild Semiconductor emerging as the
first large enterprise. Today, some of the top firms in the world, including Intel, Nvidia,
and Qualcomm, are based in California. The U.S. industry registered exports of $46
billion in 2019, as it supplied chips to foreign device makers, particularly in South East
Asia. This puts the industry on a par with automobiles as one of the most important
export industries in the United States. However, although exports are still robust, the
geography of the industry has shifted considerably since the 1980s. While U.S. firms
still produce around 44 percent of all the semiconductor chips they design at home,
significant production has migrated to Japan, Taiwan, and South Korea. For high-end
microprocessors in particular, there are now only three firms that produce efficiently at
scale.

One of these, Intel, has significant manufacturing activities in the United States. The
other two are foreign entities: Taiwan Semiconductor Manufacturing Company (TSMC)
and Samsung of South Korea. While Intel designs and makes its own chips, companies
such as Nvidia and Qualcomm specialize in chip design, outsourcing production to
contract manufacturing companies such as TSMC and Samsung. Thus, while the
United States still produces 85 percent of all chip design software and around 50
percent of chip design intellectual property and manufacturing equipment, its share of
global chip manufacturing has slipped from more than 50 percent in the 1990s to 12
percent today.

The shift of manufacturing to SE Asia has been driven by several factors. Governments
outside the United States have often offered hefty financial incentives to chip makers.
This is particularly important given that the cost of a new fabrication facility can amount
to $5 billion. Indeed, TSMC’s latest factory, which opened in 2020, cost $19.5 billion.

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Chip companies also have been attracted by growing networks of suppliers outside the
U.S. and an expanding workforce of skilled engineers capable of operating expensive
manufacturing machinery. Looking forward, semiconductor production is viewed across
the globe as a national-security priority because of the powerful role chips play not only
in consumer technology but also in the military and cyberwarfare. The sale of chips to
China, in particular, has come under political scrutiny.

Under the Trump Administration, the U.S. placed new restrictions on China’s industry,
including banning Chinese telecom giant Huawei Technologies Co. and preventing
some Chinese chip-makers from buying American manufacturing equipment without a
license. China is the world’s largest chip importer, buying $300 billion worth of foreign
made chips in 2019. As a producer, China is a bit player. Chinese firms only supply 5
percent of the world market, and Chinese chips are far less advanced, lagging behind
their Taiwanese and U.S. counterparts by five years or more, experts say.

Moves by the Trump administration to block exports of semiconductor chips and

technology to China have galvanized the Chinese. In response, President Xi Jinping
called for accelerating the development of critical industries, including semiconductors.
In 2020, Chinese semiconductor companies raised nearly $38 billion through public
offerings, private placements, and asset sales. Six Chinese provinces and regions also
pledged to invest about $13 billion in semiconductors. An article in The Economist
estimated that the Chinese government may be planning to pump $100 billion in
subsidies into Chinese chip makers.

Chinese universities are now prioritizing programs dedicated to training a new

generation of semiconductor experts. In addition, China’s cabinet raised the status of
university degrees tied to semiconductors, promising more funding and prestige.
Meanwhile, China’s elite Peking, Tsinghua, and Fudan universities have started to
channel additional resources into their semiconductor programs. China seems
determined to reduce its reliance on foreigners (and particularly America) for
semiconductor technology and chips. As one Chinese chip expert noted, “It’s about
protecting the safety of your supply chain. You never know if you’ll be next on the U.S.
blacklist.” If the Chinese are successful, the geography of international trade in
semiconductors may shift once again, with Chinese producers increasing their global
market share. If they are successful, the biggest loser may be America.

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 Read the case submission instructions stated below.

I. Please avoid copying and pure plagiarism, the goal is to empower you for
independent learning and being resourceful. The group work should show genuine
reflection of individual and group achievement for which each member should drive
personal satisfaction and team accomplishment.
II. Distribute the work among group members and identify the contribution of each
member, state name(s) against each question or as relevant.
III. This is a group task and requires written submission, via Google Class by the due
date stated in GCR. In case of any issue submit word document to my email:
muhammad.jangda@szabist.pk

IV. Please follow case study submission file name format as:

IB Fall 2023- Case Study No 2 –Global Semiconductor Trade – Group No. and
Lead Name

V. Use Times New Roman font, size 12, line spacing 1.5.
VI. There will be viva in the class.

QUESTIONS

1. Read the article and prepare a summary in your words, ensure all important aspects
of the article are covered, up to 350 words.

2. What are the factors that have contributed to the growth of the semiconductor
industry in the world?

3. What are the factors responsible for the geographic shift of the semiconductor
industry? Discuss with facts stated in the article or support from your research on
this industry.

4. Why in your view based on the details in the article is the semiconductor production
viewed across the globe as a national-security priority?

5. Discuss the merit of the US government in placing restrictions on the exports of

semiconductor chips to China? What is your stance with regards to involvement of
geopolitics in international trade, discuss with factual support.

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