Taiwan Semiconductor Manufacturing Company Steadies Itself on the Geopolitical Tightrope

On Tuesday, Dec. 6, Taiwan Semiconductor Manufacturing Co. will hold a “first tool-in” ceremony, in which the first batch of equipment will be installed on the shop floor at Arizona’s TSMC 5-nanometer manufacturing plant. The ceremony will be attended by President Joe Biden, Secretary of Commerce Gina M. Raimondo, Minister of the National Development Council Kung Ming-hsin, TSMC founder Morris Chang and his wife, Chairman Mark Liu, Chief Executive Officer Wei Chung Ching, as well as major clients, suppliers, the governor of Arizona, and other senior officials. This first tool-in ceremony will be the grandest in TSMC’s history.

The first tool-in ceremony’s high standards show that the Arizona plant is a milestone in carrying out an important political task. When multinational corporations reach a certain degree of expansion, they inevitably face the challenges of the changing international political climate. After the outbreak of the Russo-Ukrainian War earlier this year, hundreds of European, American, and Japanese multinational corporations withdrew from the Russian market by selling at rock-bottom prices or even giving away their ownership rights to senior employees or financial groups, resulting in the collapse, in the blink of an eye, of the enterprises they had been operating in Russia for decades, huge losses to their parent companies, and damages suffered, which reached astronomical proportions.

TSMC is a strategic target in the Sino-American chip war. TSMC’s products are in high demand in the governments of both Washington and Beijing. If oppression fails to achieve what is desired, other political means are used as punishment. The governments of the United States and China have abused both carrot and stick in their dealings with TSMC. Since TSMC is caught in the middle, it is impossible to please one side without offending the other. Morris Chang has retired. The TSMC management team led by Mark Liu and Wei Zhejia has long been exhausted by fierce industrial competition and Wall Street’s enthusiastic speculation in semiconductor products, yet the management team must skillfully evade bullets as they are caught in the crossfire between China and the United States. This arduous challenge is of a truly unprecedented difficulty, and perhaps it can even be said that nothing this challenging is likely to be faced in the future.

The Beijing government is obviously not sitting idly by while TSMC holds its grand first tool-in ceremony. The “TSMC brain drain” has become a hotly debated topic in Taiwanese local elections. China and Taiwan’s internet soldiers have launched an intense battle over TSMC. ANBOUND, a mainland think tank, has issued a report on this issue, which summarizes China’s accusation against TSMC’s U.S. factory. The ANBOUND report begins with the claimthat TSMC employees are packing up their belongings, uprooting their families and even bringing their cats and dogs along to emigrate to the United States. It then analyzes TSMC’s dependence on the American market and technology, concluding that TSMC’s construction of a factory in the United States is not just a simple quantitative increase in investment, but rather a jolting shock that will lead to losses in Taiwanese talent and industry. TSMC has opened the door for brain drain to the United States. Once the door opens, it is difficult to close and the drainage process is likely to become irreversible.

Despite this, at present the claim that TSMC’s U.S. plant or its overseas investment in the Kumamoto plant in Kyushu, Japan, will “drain” the Taiwanese headquarters is completely baseless; this claim’s actual purpose is to attack political adversaries in the fierce election campaign, as well as to unite China’s domestic semiconductor industry. TSMC’s Arizona plant replicates the supply chain ecosystem around Taiwan and is admittedly being constructed in the United States; however, the new Arizona plant’s production capacity is only 20,000 chips, and if this amount is added to the capacity of the three nano factories that Morris Chang has already announced, the total only comes out to less than 5% of TSMC’s overall production capacity. The 500 Taiwanese employees who are supposedly uprooting everything including their cats and dogs to emigrate to the United States make up an extremely small percentage of the company’s personnel, regardless of whether they are compared with its 70,000 total employees or to its nearly 50,000 engineers working in the field of science and technology.

Moreover, considering unfavorable factors such as the difficulty of finding workers and higher production costs in the U.S. than in Taiwan, the Arizona plant is actually not expected to start mass production until 2024. Therefore, the total length of time needed, from the planning of the new plant, training the staff, and installing equipment, to the beginning of mass production, will be more than a year longer than the time needed to complete the 5-nanometer chip manufacturing plant in Nan-ke, Taiwan. This is TSMC’s “arbitrage management” of the semiconductor manufacturing process in Taiwan and the United States. The mother plant in Taiwan can first thoroughly master the five-nanometer production process and then apply it to the Arizona plant (the Kumamoto plant in Kyushu, Japan uses FinFET technology for the already-mature 28-nanometerproduction process) so as to ensure that the new plants in the United States and Japan can mass produce quickly and smoothly, and can achieve the same yield as the Taiwanese factory while reducing the costs of cross-border management and keeping these costs within a manageable range.

TSMC is using a “relatively advanced process” in the planning of the new plant in the United States and Japan. It not only protects the rights and interests of shareholders and meets the expectations of the American and Japanese governments, but also ensures usage of the highest-performing system of internal management. In addition, the management teams of the new plants in the United States and Japan may even work locally to strengthen the close strategic alliance between TSMC’s clients and suppliers, while also working toward mastering leading trends for the production of the most advanced semiconductor technologies and products. This unique skill developed by TSMC will allow it to balance on the geopolitical tightrope. As long as TSMC’s system of manufacturing management can remain unchallenged during this process of global expansion, the plan for overseas plant installations will not only not lead to brain drain, but may end up even paying large dividends to the parent company.

TSMC’s skillful maneuvers provide an excellent example for Taiwanese companies caught in gaps caused by Sino-American supply chain decoupling. It is key that the parent company master the most advanced core production processes, find space for “management arbitrage” in each country at the government’s national or local level, and strive for relatively large subsidies and greater policy flexibility when negotiating with the government. The company’s management team should also maintain proper etiquette and focus the spotlight on political leaders such as President Biden, holding them in the center of attention. The leaders and management teams of Taiwan-funded enterprises must clearly recognize the facts. The art of balancing the poles of political power is essential in determining whether a multinational corporation will succeed or fail. Only those who can successfully walk across the political tightrope have a future. For business executives, mastering this essential skill cannot be avoided.