The Secret to Crafting a Killer Industrial Policy! Don’t Miss Out on These Must-Haves for Business Success

For years, the Taiwan Semiconductor Manufacturing Company’s Arizona plant has been a beacon of hope in the semiconductor industry. Despite initial doubts, it is now on track to meet its production targets by 2025. This unexpected success challenges the skeptics who believed that bringing chip manufacturing back to the United States would fail. So, what led to this remarkable turnaround?

1. Learning by Doing and Economies of Scale: Initially, doubts arose due to the perception that chip manufacturing relies heavily on learning by doing and dynamic economies of scale, giving incumbents a cost advantage. TSMC, which dominates the market, produces 92 percent of cutting-edge logic chips in Taiwan. The high concentration prompted calls for diversification to enhance supply chain resilience.
2. New Insights on Learning by Doing: Despite the challenges faced by new entrants in chip manufacturing, recent research indicates that learning by doing is more firm-specific than technology-node-specific. This means that success can be replicated in other locations if new plants can build on the parent company’s experience.
3. Cross-Border Knowledge Spillover: Significant knowledge transfer occurs across borders in the semiconductor industry. Foreign technology transfers, foreign direct investment, and recruitment of skilled professionals play a pivotal role in disseminating practical knowledge. The ‘fabless-foundry’ model facilitates collaborations between chip design companies and manufacturers worldwide.
4. Implications for Policy: Government support alone is not enough to ensure success in the semiconductor industry. Taiwan and South Korea’s dominance is attributed to significant government subsidies and access to foreign technologies. This contrasts with China’s struggles, despite heavy government support, emphasizing the importance of foreign technology access.
5. Global Collaborations: Collaborations between firms in different countries are key drivers of technology and product-quality improvements. Joint ventures in various sectors, such as automotive and semiconductors, have proven instrumental in technological advancements.
6. US Technological Leadership: The US stands a strong chance of catching up with Taiwan in semiconductor manufacturing, aided by its research and chip design expertise. Efforts to slow China’s progress in semiconductors may succeed due to US export restrictions on advanced technology.

In conclusion, the US remains at the forefront of technological leadership in the semiconductor industry. While policies to strengthen supply chain resilience and curtail China’s dominance are in place, it’s crucial to evaluate the broader implications. Diversifying the supply chain and considering cost-effective manufacturing in allied countries may be more strategic. The focus should be on uplifting others rather than pushing them down, as true leadership lies in fostering collaboration, innovation, and mutual growth.