In 2021, I was running a lithium-ion battery manufacturer, when the chips crisis hit us like a freight train. What used to take 1-2 months for chip delivery suddenly stretched to a painful 9-12 months, forcing us to delay our projects. It was a stark reminder of how critical these tiny things are to almost everything we do.
These memories came back last week, as I listened to a podcast featuring Tim Ferriss and Matt Pottinger, the former US Deputy National Security Advisor. The discussion turned to Taiwan, and Pottinger's message was clear and alarming: China is highly likely to attack Taiwan within this decade. This isn’t just a geopolitical issue; it’s a direct threat to the tech industry because Taiwan Semiconductor Manufacturing Company (TSMC) produces 90% of the world’s chips. So, we're all riding the TSMC rollercoaster whether we like it or not.
Then I saw the news, which was just shy of being a year old: TSMC is investing over €10 billion in the EU to build a new factory dedicated to producing chips for the transport and industrial sectors. This is a rational move in future-proofing their (and also your) business. Here’s why:
1. The Reality High Impact Events: The COVID-19 pandemic and the Russian invasion of Ukraine are stark reminders that unexpected, high-impact events are very real. These events disrupt global supply chains and have far-reaching consequences. Now, unlike Black Swans, these are well known in advance, so it is essential to hedge against such risks proactively.
2. Anticipating Future Disruptions: The potential conflict between China and Taiwan is a clear and present danger. The tech industry, heavily reliant on Taiwanese manufacturing, must brace for possible disruptions. Diversifying production and investing in alternative manufacturing hubs are smart strategies to mitigate these risks.
3. TSMC’s Strategic Move: By expanding its manufacturing footprint into the EU, TSMC is not just hedging against geopolitical risks but also ensuring stability and resilience in its supply chain.
As someone working with investors and startups on a 3-5 year timeline, with a keen eye on where the money will flow in the subsequent 5-10 years, I find myself constantly accounting for these high-impact risks. Buying from a Chinese supplier? No problem, if you are just sourcing solar panels for your next project, but if your next 10-year equipment maintenance program or component supply depends on it? Not a good idea.
Risk hedging doesn’t come cheap. It reduces your IRR and complicates supply chain setups. Take TSMC – manufacturing in EU is not the cheapest way to make stuff. Still, some people I talk to seem to think that the COVID-chips-crisis-war-hottest days on record—all within a span of just three years—should not concern their 10-year planning. Well, good luck with that.
Instead of a Conclusion
Currently, I'm reading "Chip War" by Chris Miller. Although I haven’t finished it yet, the ongoing narrative feels very much like the current state of the tech industry—a battlefield. The race to secure chip supply chains, the geopolitical tensions, and the strategic maneuvers by companies like TSMC all point to an industry in the midst of a silent but fierce war. The stakes are incredibly high, and the outcomes will shape the future of global technology and economics. Not taking it into account in your daily life or your business, is akin to burying your head in the sand.