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The Lesson Company Leaders Can Learn From The Ongoing Chip Crisis

Arvin Patel is the Chief Opertaing Officer at Intellectual Ventures’ Invention Investment Fund.

The uncertainty fueled by supply chain shortages has created both headaches and headlines while impacting every sector of our economy. These shortages, caused in large part by a lack of semiconductor chips, have shined a spotlight on a trend we as business leaders must reverse: the outsourcing of manufacturing overseas.

The impact of our dependence can be seen every day in almost every industry. The global auto industry is reported to lose $210 billion in revenues and the production of 7.7 million vehicles in 2021 due to the chip shortage. In addition, a new U.S. Department of Commerce survey found that many manufacturers only have a 5-day supply of chips left, which leaves sales, factories and companies vulnerable.

Previously, the U.S. had a stake in this sector and produced over a quarter of the world’s semiconductor chips. Today, the Taiwan Semiconductor Manufacturing Company (TSMC), Taiwan’s premier chipmaking company, makes roughly 92% (paywall) of the world’s most sophisticated semiconductors. The company also produces 60% (paywall) of the world’s less sophisticated chips that are frequently used for automobiles. I believe this dependence not only threatens our U.S. supply chain but also our national security interests.

As we reflect on these staggering statistics, we cannot let them grow. From my perspective, company leaders need to be vigilant in their efforts to invest in their workforce and the infrastructure that allows them to build critical technologies in their own backyard. Additionally, I believe we should spend time examining how we lost our competitive advantage and edge to ensure this mistake does not happen again.

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In his recent State of the Union speech, President Biden stated (paywall), “To compete for the jobs of the future, we also need to level the playing field with China and other competitors… We used to invest 2% of our G.D.P. in research and development. We don’t now. China is.”

And it’s true. Recovering from today’s semiconductor shortage requires more than building new factories. It requires companies and their leaders to adopt a new mindset. American ingenuity and competitiveness are threatened when companies reflexively move manufacturing and production overseas. We must acknowledge that creating these facilities and workforces here at home is an essential investment, and we must act decisively to bring more chip manufacturing back home. By investing in R&D, manufacturing and education, companies can reverse the present course and maintain the U.S.’s global economic leadership.

While federal efforts have been made through the America COMPETES Act, proposed legislation that allocates $52 billion in funding for domestic semiconductor production, it, unfortunately, does not change the fact that the U.S. is now in the unenviable position of playing catch up in an industry we created. The investments and time needed to build these semiconductor fabrication plants will take years.

As we reflect on the ongoing chip crisis and our government’s response, there’s a crucial lesson to be learned. While at times more costly, long-term investments here in the U.S. can be more profitable and beneficial for companies, consumers and even our national security interests.

Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?


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