Reshaping the semiconductor supply chain to reduce geopolitical risks and boost resilience

The global semiconductor industry faces mounting vulnerabilities due to geographic concentration, supply chain complexity, and geopolitical tensions, prompting major investments in regional resilience strategies and advanced technological solutions.

The semiconductor industry underpins a vast array of critical sectors, from consumer electronics and automotive manufacturing to healthcare and national defence systems. While traditionally operating quietly behind the scene...

s, recent years have exposed significant fragilities in the global semiconductor supply chain, spotlighting the urgent need for resilience amidst recurring disruptions such as widespread chip shortages that stalled production lines and emptied digital shelves.

At the heart of the fragility lies decades of optimisation for cost-efficiency within a highly intricate and globally interdependent system. Semiconductor manufacturing is concentrated in a narrow geographic footprint: Taiwan, for instance, dominates production of advanced logic chips, accounting for approximately 92 percent of the world’s most advanced nodes according to industry sources. Broader research places Taiwan’s share of global semiconductor manufacturing capacity at around 65 to 75 percent, with similar concentration in advanced chip production exceeding 90 percent or more among top-tier suppliers. This creates a profound single point of failure, leaving the global economy vulnerable to geopolitical tensions, regional conflicts, natural disasters, or infrastructural disruptions affecting this key hub.

European policymakers have recognised the gravity of these geographic dependencies, prompting initiatives like the European Chips Act designed to bolster regional semiconductor capabilities and reduce external reliance. The European Union currently holds less than 10 percent of global chip fabrication capacity, with over 75 percent of advanced node production concentrated in Taiwan and South Korea. The European effort seeks to decentralise manufacturing through strategic investments and innovation policies under frameworks such as the Competitiveness Compass and the Clean Industrial Deal.

Beyond geographic risks, the semiconductor supply chain is inherently complex, involving many thousands of process steps spread across extended timescales. The fabrication of a single chip undergoes intricate sequences often exceeding 1,000 steps, conducted in specialised facilities dispersed worldwide. Such complexity precludes rapid scaling of production; if demand for certain chips surges abruptly, as seen in automotive or consumer electronics sectors, fabricators cannot instantly ramp up output, causing bottlenecks that ripple across industries for months.

Another critical vulnerability is the lack of real-time supply chain visibility and coordination among geographically and functionally distributed partners. Semiconductor production typically spans multiple countries and entities: from chip design and raw materials provision to fabrication, packaging, and testing facilities. Companies further down the chain often lack live insight into upstream inventories or process issues until disruptions manifest, escalating minor delays into major operational shutdowns. To combat this, industry groups and standards bodies are striving to improve transparency and traceability through technologies and standardised protocols, including initiatives led by the Internet Engineering Task Force focusing on supply chain integrity and trust.

To address these multifaceted challenges, resilience strategies are emerging that blend diversification, technological investment, and workforce development. Governments are playing pivotal roles; for example, the United States’ CHIPS and Science Act and Europe’s Chips Act allocate substantial funding to incentivise new fabrication plants regionally, diminishing concentration risks. Nonetheless, the objective is not full self-sufficiency per country, which would be impractical, but rather a balanced distribution of capabilities and thoughtful partitioning of production steps, enabling regional hubs to flexibly absorb shocks without destabilising the entire global network.

Technological enablers are also crucial. Adoption of digital tools, such as AI-powered demand forecasting, digital twins to simulate disruptions, and contract lifecycle management systems, allows better supply chain agility and risk mitigation by improving data transparency and automating complex partner relationship management. Moreover, advancing chip design towards heterogeneous integration or chiplet architectures can reduce dependency on single-sourced monolithic chips by allowing flexible combinations from various suppliers.

Equally important is strengthening the semiconductor workforce pipeline. Sector stakeholders are partnering with universities and vocational institutions to develop targeted curricula and training programmes, ensuring a skilled talent pool capable of operating cutting-edge fabs, managing suppliers, and innovating process technologies. National research programmes, including those supported by the National Science Foundation in the US and aligned industry R&D initiatives, are investing resources to advance cleanroom training and hands-on learning experiences vital for sustaining future capacity.

In sum, the semiconductor supply chain is evolving towards a more networked model of regional hubs interconnected by robust standards for security, traceability, and sustainability. While enhancing resilience requires significant investment, both public and private sectors understand that the costs of fragility far outweigh these efforts. The urgency underscored by recent disruptions and geopolitical developments has catalysed long-term collaborations aimed at safeguarding the foundational infrastructure of the global digital economy. As industry expert Zac Amos noted, resilience, though costly, is essential for stability and innovation amid a rapidly shifting technological landscape.

Source: Noah Wire Services