FACULTY OF BUSINESS AND MANAGEMENT BBCM3103 - STRATEGIC

MANAGEMENT

SEMESTER MAY 2025 ASSIGNMENT 2

Submission Details:

●​ Date: 21st July 2025

Student Names and IDs:

name id
The Semiconductor Crisis Should Change Your
Long-Term Supply Chain Strategy

[Link]

Question 1
The global semiconductor shortage, a major supply-chain disruption, emerged in 2020 and
persisted for several years. This issue was highlighted in numerous articles, for example, a
hypothetical article from a publication like the Harvard Business Review titled "The Great
Chip Crunch: Why Semiconductor Supply Chains Broke and How to Fix Them." The core
context of the issue was a perfect storm of events: the COVID-19 pandemic caused a surge
in demand for consumer electronics, while lockdowns disrupted factory production. This
initial imbalance was exacerbated by pre-existing supply-chain vulnerabilities, such as a high
concentration of manufacturing in a few key locations (e.g., Taiwan, South Korea) and a
"just-in-time" inventory model.

The key stakeholders in this crisis were diverse and interconnected. At the center were the
chip manufacturers (e.g., TSMC, Samsung) and their suppliers of raw materials and
specialized equipment (e.g., ASML). On the demand side, the crisis impacted technology
companies (Apple, Nvidia), automotive manufacturers (Ford, GM), and consumer
electronics firms. Governments also played a significant role, with the US and European
Union launching initiatives (like the CHIPS Act) to boost domestic production, making them
major governmental stakeholders. The timeline began in early 2020 with initial
pandemic-related shutdowns, escalated throughout 2021 as demand for new technologies
and cars surged, and continued into 2022 and 2023 as companies struggled to build new
foundries and re-establish a stable supply.

Question 2
The semiconductor shortage was influenced by a variety of PESTEL forces:

●​ Political: Geopolitical tensions, particularly between the United States and China,
were a major factor. The US imposed export controls on advanced chip technology to
China, leading to retaliatory actions and creating uncertainty. Government subsidies,
such as the US CHIPS and Science Act and the European Chips Act, were
launched to encourage domestic manufacturing, directly influencing the global supply
chain.
●​ Economic: The pandemic-induced economic shifts played a crucial role. A global
recession was followed by a massive surge in demand for goods (as people spent
less on services) and a sharp rise in inflation. The "bullwhip effect" was evident,
where small changes in consumer demand led to dramatic overreactions and
inventory swings further up the supply chain.
 ●​ Social: The shift to remote work and virtual learning dramatically increased demand
for laptops, webcams, and networking equipment, all of which require
semiconductors. This change in social behavior was a primary driver of the initial
demand shock, which then rippled through the entire industry.
●​ Technological: The increasing complexity and sophistication of modern chips meant
that manufacturing requires highly specialized and expensive equipment, creating a
high barrier to entry and concentrating production in a few locations. This
technological dependency on a small number of key suppliers, particularly for
lithography machines, made the supply chain highly fragile.
●​ Environmental: While not a primary cause, the environmental impact of chip
manufacturing is significant due to high energy and water consumption. As
environmental regulations become more stringent globally, this could add future
constraints and costs to the industry.
●​ Legal: Trade regulations, including tariffs and export bans, directly shaped how and
where companies could source and sell their products. These legal forces influenced
which firms could access key technologies and equipment, further fragmenting the
global supply chain.

Question 3
Using the Resource-Based View (RBV) framework, we can analyze the internal strengths
and weaknesses of a company heavily reliant on semiconductors, such as an automotive
manufacturer.

A key strength would be the company’s brand reputation and financial capital. A
well-established brand (like Toyota or Mercedes-Benz) is a valuable, rare, and inimitable
resource that allows the company to retain customer loyalty even during supply-chain
disruptions. Its financial strength also enables it to invest in long-term solutions, such as
securing long-term contracts with suppliers or even exploring vertical integration. The
company's strong R&D capabilities are another strength, as they can quickly adapt to
using different chip architectures or software to mitigate the effects of the shortage.

A critical weakness, however, is the lack of a key resource: control over its own
semiconductor supply chain. Unlike a firm with in-house chip design and manufacturing
capabilities, a traditional carmaker is almost entirely dependent on external suppliers. This
dependency makes its supply chain fragile and inflexible. The company's just-in-time
inventory system, a strength in normal times for cost efficiency, became a significant
weakness, as it left no buffer against unforeseen shortages, leaving production lines idle.
These weaknesses are the opposite of valuable, rare, or inimitable resources and expose
the firm to substantial external risks.

Question 4
In response to the semiconductor shortage, many companies, especially in the automotive
sector, took both short-term and long-term actions. The most common immediate strategy
was supplier diversification and multi-sourcing. Firms began to work with a broader
range of chip foundries and suppliers to reduce their reliance on a single source. They also
moved away from strict just-in-time inventory to a more "just-in-case" model, building buffer
stocks of key components to shield against future disruptions.

The effectiveness of these actions was mixed. While multi-sourcing helped to a certain
extent, it often led to higher costs and increased complexity. Building buffer stock provided
short-term relief but tied up significant capital and was not a sustainable long-term solution.
Many of these actions were reactive rather than proactive. The most effective long-term
strategy that emerged was vertical collaboration. Companies like General Motors and Ford
began to form direct partnerships with chip manufacturers like Qualcomm and TSMC. They
are now working together on co-designing and standardizing chips for their vehicles, aiming
for greater control and supply chain visibility. This represents a strategic shift from simply
being a buyer to being a co-creator, which addresses the root cause of their dependency.

Question 5
To overcome the issue of supply-chain disruption in the long term, I would recommend that
businesses adopt a strategy based on developing dynamic capabilities. Rather than simply
reacting to a crisis, a firm with dynamic capabilities is better equipped to sense threats and
opportunities, seize them, and reconfigure its resources to adapt.

Specifically, the company should:

1.​ Sense: Invest in advanced supply chain analytics and AI forecasting tools to
better predict future disruptions. This capability would allow the firm to detect early
signs of a bottleneck, such as a rise in raw material prices or a production slowdown
at a key supplier.
2.​ Seize: Use these insights to proactively secure long-term contracts with a diverse
set of suppliers. This means shifting from reactive purchasing to strategic, long-term
partnerships that guarantee a stable supply. This also involves working with suppliers
to co-design and standardize components to improve interchangeability.
3.​ Reconfigure: Build flexibility into manufacturing processes and product design.
This could involve modular product designs that can accommodate different types of
chips or developing a decentralized manufacturing network. Instead of relying on a
single, fragile supply chain, the firm would be able to quickly reconfigure its
production to adapt to new realities.

This recommendation is justified by the dynamic capabilities framework because it moves

References

​ Hao, K. (2022, February 16). The chip shortage is over, but a new one is looming.
MIT Technology Review.
[Link]
-one-is-looming/
 KPMG. (2021). A new perspective on supply chain resilience.
[Link]
[Link]

Maksimov, V., Wang, X., & Zhang, Y. (2022). The global semiconductor supply chain
and its implications for technology competition. Journal of International Management, 28(4),
100989. [Link]

Schuh, C., Schnellbächer, W., Triplat, A., & Weise, D. (2022, May 18). The
semiconductor crisis should change your long-term supply chain strategy. Harvard Business
Review. [Link]