Global Chip Shortage: Pros and Cons.
In the past year, the emergence of Coronavirus has upended many things worldwide. While most people are focused on their personal lives and what they can or cannot access, deeper issues are below the surface. While the disruptions are horrible for businesses and individuals alike, it was also a good thing. Why? It exposed the problems in the supply chain and the business environment. With knowledge in hand, a solution can be brainstormed and implemented. Many people will bicker back and forth about covid, delta variants, masks, and vaccines for a while. In the meantime, it is essential for us, as business owners, to step back and look at what is affected.
There is a problematic global shortage of semiconductor computer chips. This shortage has affected the automotive industry. For example, according to Maki Shiraki and Ritsuko Ando, Toyota is to reduce its output worldwide by 40% in September 2021. Toyota is not the only auto industry company affected. GM is to halt production at almost all assembly plants in the United States, Canada, and Mexico. Ford’s output dropped 50% in Q2 due to the shortage of chips.
Due to shutdowns, more people were at home worldwide, which increased purchases and use of technology like cell phones, computers, televisions, and gaming consoles. These items, like automotive, also use computer chips. Schools became online-based during shutdowns, which created a more significant need for computers for the students. At the same time, many technology companies were rolling out products implementing 5G capabilities. These are just a few things that increased the demand and need for computer chips. What this means for other industries is that if the demand for their product was not high initially, their need for the supply was low. Due to the fewer demands – in favor of other technology – the chips were not ordered to have stored on hand. As a result, industries like automotive get pushed to the back burner on receiving the needed supplies. If these automotive companies did not already have a lot of the computer chips stored on hand, they were hit hard a lot sooner than those who had the foresight to do so.
On the other hand, used auto sales are helping to get some of these companies through the difficulty without having to shut down completely. With these companies experiencing such challenges, it has shown them the importance of having contingency plans in place and a stockpile of the most used or needed materials. Having a contingency plan in place can help companies know what alternative materials can be obtained in emergency situations.
Aside from a global shortage of chips, other problems have caused a ripple effect within the supply chain and businesses. Other situations creating issues on top of the deficit are natural disasters, medical emergencies, shipping delays, and price increases due to inflation. The continuity and sustainability of a business are difficult if these situations are not considered and prepared for ahead of time.
Considering there is a push to increase electric cars, there will be a higher need for these conductor chips. These electric vehicles face the same issues that a gasoline-powered vehicle does, a global shortage of conductor chips. However, automotive is not the only industry relying on these chips. Other sectors like the military, infrastructure, manufacturing, warehousing, transportation, logistics, and healthcare rely on them for everyday use.
The Semiconductor Industry Association (SIA) put forth information on the percentages of manufacturing and suppliers of materials for these chips. According to their numbers, Asia holds 75% of the manufacturing capacities worldwide. What this means for countries and businesses is a reliance on other countries for their needed supplies and materials. When a supplying country is being hit with natural disasters, lack of sufficient resources, or internal and external conflicts, it can cause issues with obtaining resources from them.
There are multiple upsides to the current problem at hand. For one, the low supply and high demand for these chips show a need for them. The crippling effect that has hit businesses worldwide indicates that opportunities are ripe for investments into the conductor chips and manufacturers. With increased investments comes opportunities for other manufacturers and raw materials suppliers to open in the United States. Having multiple domestic manufacturers creates a healthy competitive environment, lowers reliance on others, and reduces shortages in the future.
Investing in these companies improves the capabilities of the suppliers of the materials needed. Suppose 70% of our chips come from heavily populated countries that have been hindered by shutdowns or regulations and can only run at 25% to 50% percent capacity. In that case, the countries that aren’t restricted by these regulations should be considered a valued investment opportunity to break into the market. A higher market percentage can be obtained in the U.S. or any other country that isn’t hindered by regulations.
In 1971 the population was at 3,775,759,617 worldwide. In 2021 the population is at 7,874,965,825 worldwide. It is predicted that by 2071 the worldwide population will be at 10,484,559,382. What this means is in 50 years, as the population continues to grow, there can be a hindrance that exceeds current numbers when a problem arises. There will be a higher influx of demands in a couple of generations. The expected increase in population over the next 50 years indicates there need to be solutions provided now to prepare for future demands.
Numbers retrieved from macrotrends
The other upsides are that new opportunities are open to creating a new type of technology that does not rely on semiconductor chips. Other opportunities are businesses can now see the value of and focus on improving research and development, developing new models, or improving their current processes.
Alternatively, automotive companies can utilize scrap yards and pull parts, chips, and other items that are in a state of shortage when conditions are difficult. While this provides a temporary solution, it also allows these scrap yards to turn a profit and allows more to be recycled and reused as needed.
Even if implementing this was to provide your organization with 50% relief from an already struggling bottom line, it will still be 50% better than what some may be about to face, which is the ability to produce nothing.
Somewhere, right now, an innovative organization may have discovered, are in the process of developing, or have devised concepts that would provide solutions that would eliminate these problems.
Perhaps, you are an entrepreneur looking to venture into new investments or break into an industry. If so, we await your solutions. We root for your success because it benefits us all.
This has been a Janus Report exclusive brought to you by L. Clemons-Taylor & Mark Taylor. If you would like advice or assistance to grow, expand, or open a business, you can contact us at Big & Small Consulting.
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