By Maziar Adl
Like it or not, every industry encounters a time when the market conditions are just right for a “perfect storm” of bad events. Within the past year, the semiconductor shortage became the result of such circumstances.
While the COVID-19 pandemic did not make things better, a confluence of other events kicked off this semiconductor slippery slope. The growth of 5G-based automation led to even more demand for already in-demand chips, while governments of globalized economies around the world positioned themselves around the United States’ current sanctions on China.
Suddenly, the world felt the pressure of a centralized supply chain system set up around a few major overseas players, with few alternate solutions as the pandemic hit. This chain of events highlighted the urgent need for more players in the semiconductor production game.
While the process of correcting the chip shortage will be complex and arduous, there are several steps leaders in our industry should keep in mind to get back on track in developing an effective U.S.-based chip production ecosystem.
Educate your workforce
To bring more chip manufacturing back to U.S. soil, American workers must remain a priority—both for manufacturers and national lawmakers. Skilled workers are key assets towards developing a more diverse supply chain, and education is vital to a strong and innovative worker foundation. In its effort to solve the chip shortage, the U.S. government needs to support training programs for domestic chip builders, as well as connect manufacturers with education resources.
National and global industry associations, such as SEMI and the SIA, provide many advocacy and education tools that align with boosting national efforts to diversify and strengthen the semiconductor supply chain gap. Our industry should work together in these efforts and make educating a homegrown workforce a priority. As the saying goes, “If you build it, they will come.”
Encourage government action
Aside from supporting education initiatives, the U.S. government serves a key role in growing domestic chip growth through its regulatory powers. The Biden administration has prioritized finding a solution to this problem. Earlier this year, President Biden proposed significant spending efforts to jumpstart development, entrepreneurism, and domestic production. The spending proposal still must be approved by Congress to make any headway, and subsidies are not enough on their own.
The chip manufacturing space is capital-intensive and requires specialized knowledge. The government must also help bolster domestic production by acting to protect the intellectual property of domestic chips. This will be particularly key for more specialized chips, a growing category as more startups enter the sector.
The government could incentivize chipmakers to produce in America with subsidies and tax credits or financially penalize importers, making it harder for them to do business in the U.S. market. Whichever routes the government decides to take, it will be important for those in the semiconductor industry to watch that space and encourage more government action and collaboration. With these incentives, the government can help support a powerful U.S.-based semiconductor industry, creating high paying and high skilled jobs for Americans.
Allow the market to reset
As complex as the chip shortage may be, it is, in essence, another tale of balancing supply and demand. The most direct path to solving the chip shortage is increasing the manufacturing output to keep up with the demand for chips. The COVID-19 pandemic certainly made this supply chain problem worse, but it did not cause the chip shortage. Therefore, manufacturers cannot rely on pandemic recovery as the only solution to the shortage. It will take time to build more semiconductor production facilities, hire and train workers, and scale up production, but we must allow time for the market to reset itself and stabilize. Waiting is often the hardest part, but this is an essential step for leaders to keep in mind as they look for the light at the end of the tunnel. Plan accordingly.
Understanding that it’s difficult to plan for the unexpected—2020 showcased this in every industry and sector—there are steps the manufacturing industry can take now to help ease the tension in the global chip shortage. Diversifying the supply chain is essential to preventing another chip shortage down the road. Consider how you’re encouraging home-grown innovation and promoting tech development at every level of your organization in our collective effort to resolve this crisis.
Maziar Adl is co-founder and chief technical officer at Gocious, a developer of cloud-based product planning software for discrete manufacturers.