A New Semiconductor Supply Chain to Rival Taiwan?

If you're a supply chain manager in a tech manufacturing company, your job may feel like navigating a global landscape littered with landmines:

On the one hand, geopolitical tensions and the shadow of a possible Chinese invasion of Taiwan threaten to disrupt the flow of your products’ most critical component—semiconductors. On the other hand, the ever-growing demand for these chips, from smartphones to fighter jets, seems insatiable.

Then, while tip-toeing around these looming threats, your worst nightmare comes true: Mother Nature sends a 7.4 earthquake across the island, forcing TSMC, the company that single-handedly supplies over 60% of the world’s semiconductors, to evacuate its factories and immediately halt production.

The pressure to secure a steady supply is immense. But today, a glimmer of hope emerges—a potential new "near-shored" semiconductor supply chain in Mexico, courtesy of a recent U.S.-Mexico partnership. Could this answer your tech supply chain woes, or is it just another headache in the making? Let's dive in and explore the possibilities.

Taiwan and today's semiconductor supply chain

For decades, Taiwan, specifically the Taiwan Semiconductor Manufacturing Company (TSMC), has reigned supreme as the world's leading producer of computer chips. Given the chips' applications in everything from smartphones to fighter jets, TSMC's dominance is strategically crucial for the U.S. tech and military industries.

Industry experts attribute Taiwan's rise to the top to a combination of factors, including:

• Early government investments.
• A highly skilled workforce.
• A continuous focus on innovation.

Also, TSMC has a stable partnership with Netherlands-based ASML. This company is Europe's largest tech firm and the maker of the world’s most advanced lithography systems, i.e., the machines that make chips.

Today, TSMC alone holds 61.2% of the global semiconductor foundry market and around 90% market share of the most advanced semiconductors like those used in military and cutting-edge AI applications.

Factors reshaping the semiconductor supply chain

Despite Taiwan and TSMC’s monopoly on advanced chips, several factors are reshaping the global semiconductor supply chain landscape:

• The ongoing "Chips War" between the U.S. and China leads to trade restrictions and a push for regionalized production.
• The ever-increasing demand for semiconductors across industries and the need for specialized chips for emerging technologies like AI and 5G is straining current production capacity.
• The rapid pace of technological advancements demands constant evolution in chip design and manufacturing processes.

These factors are forcing many companies to diversify their semiconductor supply away from Taiwan. Surprisingly, Mexico is the main candidate for U.S. companies.

Nearshoring the semiconductor supply chain in Mexico

Mexico offers several advantages for near-shoring the semiconductor supply chain:?

• Geographical proximity to the U.S.
• A growing pool of skilled labor
• Stable trade ties with the U.S.

Because of these advantages, on March 28th, 2024, the U.S. government announced a new partnership with Mexico to explore establishing a new semiconductor supply chain "closer to home."

The partnership will be financed with part of the $500 million in the International Technology Security and Innovation (ITSI) Fund under the U.S. CHIPS Act. The latter is a law passed in 2022 that provides $39 billion of incentives and 25% tax credits to boost investments in domestic chip fabrication.

Challenges of the new semiconductor supply chain

While promising, a Mexico-based supply chain faces challenges. Mexico's current semiconductor industry needs to gain the maturity of Taiwan's, requiring significant infrastructure investments and workforce development initiatives.

Additionally, establishing a new supply chain takes time, expertise, and collaboration between governments and private companies.

Strategies for success in the new semiconductor supply chain

For supply chain professionals in the U.S. tech industry, this nascent supply chain represents an opportunity to gain an early advantage over competitors. Here are some key strategies to consider:

• Diversify your supplier base: Spread your sourcing across geographically diverse regions from Southeast Asia to Mexico to mitigate risk.
• Embrace technology for smarter and faster diversification: Utilize AI-powered supplier discovery tools like BabelusAI. BabelusAI can slash supplier discovery time by up to 90%, leaving no relevant suppliers out, including those in the developing Mexican supply chain.
• Agility and flexibility: Be prepared to adapt your procurement strategies quickly in response to market changes and supply chain disruptions. Adjusting production schedules or qualifying new suppliers based on real-time data and market fluctuations may be necessary. Again, BabelusAI can help by automatically keeping your supplier database clean and updated.
• Enhanced demand forecasting and collaboration: Early engagement with potential Mexican suppliers can provide valuable insights into their capabilities and timelines, improve demand forecasting accuracy, and secure allocations.
• Long-term partnerships: Build strong relationships with key suppliers, regardless of location, to secure access to critical components and favorable pricing.

The new semiconductor supply chain landscape presents challenges and immense opportunities. Send us a message and learn how to take advantage of BabelusAI’s expertise in the Mexican supplier market, or schedule a call now to set up a free pilot for your company and start discovering new Mexican semiconductor suppliers today.