Tech Shocks within Economic Disruption Context

Technology is undoubtedly disruptive at many levels in society. For example, artificial intelligence (AI), the Internet of Things (IoT), biotechnology, and nanotechnology will be more disruptive than other technologies. Not that because they are fancy techs, but because they have a significant economic impact globally.

The disruption of technology is perceived differently by different people depending on their position and roles in society. While most public concerns seem to be related to ethics and law, the more significant part of the iceberg refers to the economy encompassing both ethical and legal aspects. We have been experiencing the massive impact of technology on the economy and business for decades now.

It is not just information technology but all other technology domains. So, any gadget aiming to make our lives easier, more comfortable, livelier, and more entertaining has a technological concept and construct behind it. For example, cars, aircraft, washing machines, smartphones, fitness devices, game consoles, and TVs are technological constructs.

We have experienced several technology shocks over the last few decades. Some were subtle, and some were sharp. So, what do I mean by tech shocks? I can explain the impact and implications of tech shocks via a simple pattern.

So, in simple terms, the pattern depicts a demand on a particular technology construct increases significantly, and the manufacturers struggle or fail to supply these spikes. Due to these spikes, some irrational activities occur, and authorities and consumers make rush decisions in crisis mode, creating a shock.

Some companies lose their competitive edge, and opportunistic players enter the market. So, the problem is that investors heavily bet on certain companies addressing the demand, but suddenly unexpected companies emerge and cause the crash of the heavily invested companies.

Different business organizations and governments respond to these shocks differently. Some use growth, some change tactics, some make paradigm shifts, and some employ protection approaches.

While strategic growth, paradigm shifts, and tactical changes from innovative and collaborative angles look sustainable, the protection approach might cause problems in global settings. For example, some countries use a protection method putting a firewall to protect their technology assets. And some countries even fully declare technological independence focusing on homemade innovation only.

While indigenous innovation is a viable strategy used by some countries, meaning innovation created by indigenous people of the country, exclusivity could be a problem. Domestic independence is favorable and achievable to some extent. However, there will always be dependence at a global level. Different countries have different workforces with various capabilities; hence there will always be some dependency.

There are many semiconductor companies globally. However, ASML, based in the Netherlands, is the sole supplier of extreme ultraviolet lithography (EUVL) devices globally. This organization supplies this particular product to organizations in other countries. For example, in 2020, Samsung and TSMC used EUVL in production targeting 5nm. And Apple used 5nm for their new 5G iPhones.

I gave this example to portray the global dependency among sizable tech organizations aiming to offer innovative solutions. So, hypothetically, imagine what might happen if ASML company stops serving organizations in other countries.

Within this context, now we are experiencing another tech shock. As Bloomberg pointed out in this article titled The Chip Shortage Keeps Getting Worse. Why Can't We Just Make More? "Shortages of semiconductors are battering automakers and tech giants, raising alarm bells from Washington to Brussels to Beijing. The crunch has raised a fundamental question for policymakers, customers and investors: Why can't we just make more chips?"

According to a report by Deloitte, "East Asia (China, Japan, South Korea and Taiwan) is where some of the world's most important semiconductor players are located. The region has become a hotspot for the semiconductor industry due to its burgeoning economy, the rise of mobile communications and growth in cloud computing."

The report points out that "China commands almost half of overall market value, split roughly 50–50 between domestic demand and Taiwan-based, world-leading ODMs (e.g., Foxconn and Quanta) or foundries (e.g., Taiwan Semiconductor Manufacturing Company [TSMC]) serving global clients. China also aspires to a self-sufficient semiconductor industry and ascension to become a global powerhouse at the same time. Japan is an important supplier of semiconductor materials, high-end equipment, and special semiconductors. South Korea has a commanding lead in the global HBM DRAM market."

People might ask why every country build their own semiconductor factories, considering IDC expects "the semiconductor market to grow by 17.3% in 2021 versus 10.8% in 2020."

This point of view sounds reasonable. However, it is easier said than done. Building semiconductor manufacturing facilities are enormously expensive. The facilities require an upfront investment of billions of dollars. In addition, these complex businesses need sophisticated materials, industry compliance, and a talented workforce, which is globally scarce.

In addition, technological developments can easily and quickly become obsolete. For example, while we produced chips in 800 nm in 1987, we now have 5 nm in MOSFET scaling. And technologists expect 2 nm by 2024. So, we cannot deny Moore's Law.

While investments to address shortages in essential tech constructs at a local level can be necessary and ideal for economic development, we also need global innovation and collaboration. Innovation and collaboration are part of the worldwide ecosystem.

This complex ecosystem requires stringent yet flexible rules. My way or highway is not a sensible and sustainable approach. We also need to develop policies supporting dispute resolution mechanisms to nurture this sensitive ecosystem.

In the end, life is not just about survival by building walls around us, but it is also about expansion. No individual or a nation is an island in this universe. We are all connected in visible and invisible ways, so survival and evolution must be balanced based on universal rules.

Thank you for reading my perspectives.

The original version of this article is published on Technology Hits.

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