Various perspectives – on Latin American nearshoring and Indo-Pacific “friendshoring” with allied nations in an effort to secure and shorten global supply chains – as well as the emergence of “China +1” – four emergent manufacturing hubs – can be found here in this post.
China +1: Four regions emerge as new manufacturing hubs
“Taitra’s study suggests that supply chain reconfiguration is far from over.”
As reported by Digitimes Asia: “Many companies are implementing a “China+1” risk diversification plan, looking beyond China for new regional manufacturing bases. A recent study published by the Taiwan External Trade Development Council (TAITRA)…reveals that ASEAN, Central and Eastern Europe, India, and Mexico have risen to become the top four global manufacturing hubs, diminishing China’s role in supply chains. Taitra’s study suggests that supply chain reconfiguration is far from over. This transformation not only encompasses tech industries such as EVs, automotive electronics, AI servers, and semiconductors, but also has a domino effect on adjacent sectors. Industries like aerospace, smart healthcare, and smart energy will witness an influx of new opportunities.
India: The electronics manufacturing industry is particularly fond of investing in India, according to Taitra. India’s industrial ecosystem is enriched by not just its 1.4 billion local population but also 30 million international workers, offering an extensive network of human capital. The council believes that Foxconn and Pegatron will expand their operations greatly in India.
Association of Southeast Asian Nations (ASEAN): Within ASEAN, sectors like semiconductors, PCBs, and battery manufacturing are seeing robust investment. Despite the higher production costs, Thailand has become the world’s third largest PCB manufacturing country, which stands to show how strong the global China+1 risk diversification tide is. Companies based in Taiwan have been increasing their investment in Thailand for the same reason.
Mexico: The fact that over 70% of multinational corporations still import raw materials from regions outside of Mexico have made companies put added pressure on suppliers to relocate to areas close to Mexico for decreased dependency on Asia, especially China. Mexico rose to become a regional manufacturing hub in recent years due to its demographic dividend and its proximity to the US.
Central and Eastern Europe: Central and Eastern Europe provides a competitive landscape in terms of labor and land costs compared to Western Europe. The region, predominantly focused on manufacturing, could seize the opportunity to grow its EV, key components, and other related industries.
The Rise of Nearshoring in Latin America: a spotlight on Mexico – and India and US – “the strategic partnership of the 21st century”?
Control Risk does some really solid research and analysis on all things supply chain:
“…in the current context, the region is well positioned to benefit from the practice by contributing to the establishment of more reliable and resilient supply chains in the Western Hemisphere.”
Nearshoring – The Rise of Latin American Supply Chains, Top Risks and Considerations: In this report, Control Risks offers a snapshot of nearshoring opportunities and risks across the region, which will allow your organization to develop an informed strategy for growing your business or investing in Latin America. A short introduction to the report:
With the war in Ukraine, the continued ripple effect of global bottlenecks, rising costs and an increasingly difficult geopolitical climate in China, global supply chains are shifting. As a result, Latin America has become an increasingly attractive destination of nearshore investment for many U.S. companies looking to de-risk and shorten supply chains. Despite political instability, policy uncertainty, economic malaise, corruption challenges and widespread insecurity, nearshoring trends make the region attractive for foreign investment in key sectors such as manufacturing, pharmaceuticals, energy (including renewables) and technology.
“…to capitalise on the opportunities provided by India, American businesses looking to enter the Indian market will need to undertake a careful assessment of the regulatory landscape for relevant sectors.”
The India-US bonhomie – the strategic partnership of the 21st century?: Explore the evolving India-US strategic partnership and its impact on businesses. Discover how India’s economic ties with the US, growing defense collaboration, and involvement in the “friendshoring” strategy are reshaping global dynamics. From the analyis:
“…traditional concerns among American companies of India being a difficult place to do business will persist. However, to capitalise on the opportunities provided by India, American businesses looking to enter the Indian market will need to undertake a careful assessment of the regulatory landscape for relevant sectors. This should also include an analysis of the business environment across different states, as each region presents its own regulatory maze and operational challenges. Such a comparative study will enable companies to determine the region within India best placed for their investments. Finally, companies must undertake a careful pre-assessment of all integrity risks and political connections specific to prospective partners as this could undermine their operations in the country.”
Promoting Semiconductor “Friendshoring”: The Role of Indo-Pacific Allies and Partners in Supply Chain Resilience
In 2023, The CSIS Asia Program introduce a joint research project with the CSIS Scholl Chair in International Business and the Wadhwani Center for AI and Advanced Technologies exploring semiconductor supply chains in the Indo-Pacific and cooperation with U.S. partners. Two new reports look at implementation of the CHIPS Act, the state of the semiconductor supply chain in the Indo-Pacific, and the potential role of the Indo-Pacific Economic Framework in advancing a more resilient and secure eco-system:
“Continued dialogue with key allies, particularly in the Indo-Pacific, is important to minimize duplicative investments, grow the comparative strengths of each country’s domestic industry, and de-risk key dependencies.”
Mapping the Semiconductor Supply Chain: The Critical Role of the Indo-Pacific Region: The semiconductor industry and its supply chain increasingly rival oil and gas in terms of their importance to international relations, the attention they receive from senior leaders in government and business, and their use as a tool of foreign policy. Across a diverse range of global opportunities and geopolitical challenges, the semiconductor industry supply chain is increasingly at the center of the story. While the semiconductor industry is truly global, the Indo-Pacific is its critical region. Taiwan, Japan, China, and South Korea all play pivotal roles in the Indo-Pacific and particularly the global semiconductor landscape. This paper provides an analysis of the role that the Indo-Pacific region plays in the global semiconductor industry across the various stages of the semiconductor supply chain. Since the United States is a critical Pacific power and a leader in the global semiconductor industry, this analysis also includes the United States when referring to key semiconductor players in the Indo-Pacific region.
From the concluding statements from the report: “As it stands, technological and economic limitations have evolved a semiconductor supply chain that is incredibly complex and specialized. Despite consistent efforts, no government has been able to achieve true self-sufficiency in semiconductor manufacturing to date. To successfully fortify the United States’ position along the supply chain and mitigate risk, U.S. policy should aim to grow a healthy and resilient semiconductor ecosystem in which allies and partners continue to play a key role. The Department of Commerce has already stated that this is a key prong of the CHIPS Act implementation strategy. Carried out by the CHIPS office in the Department of Commerce, coordinating investment and incentive programs, promoting knowledge exchanges and collaboration, and facilitating cross-border commerce are all high-priority objectives for CHIPS Act implementation. Continued dialogue with key allies, particularly in the Indo-Pacific, is important to minimize duplicative investments, grow the comparative strengths of each country’s domestic industry, and de-risk key dependencies.”
“.Against the backdrop of increased tensions with China, the United States is reinvigorating industrial policy through the CHIPS and Science Act and building a new regional trade architecture with partner countries through the Indo-Pacific Economic Framework for Prosperity (IPEF).”
Securing Semiconductor Supply Chains in the Indo-Pacific Economic Framework for Prosperity: A seismic shift in trade, economic, and technology competition policy is underway, particularly in the United States. Matters traditionally relegated to the national security realm increasingly bleed over into economic policy. Parallel to this shift is a U.S. movement away from traditional free trade agreements (FTAs) centered on market access and tariff liberalization in favor of arrangements focused on sustainability and worker-centric goals, without offering additional market access. These two moves have become part of a new industrial policy that aims to strengthen U.S. high-tech competitiveness while preventing foreign adversaries from acquiring advanced technologies.
This paper is one of two. It evaluates the intersection of the U.S. high-tech industrial strategy and its emergent trade strategy, focusing on the Indo-Pacific Economic Framework for Prosperity (IPEF). The second paper provides a deeper dive into the semiconductor ecosystem in Japan, China, South Korea, Taiwan, and the United States [see above]. This paper assesses the evolution of the CHIPS and Science Act and how it interacts—to the extent it does at all—with ongoing negotiations within the supply chain pillar of IPEF. It concludes that the administration has not thus far succeeded in building consistency between IPEF and the deployment of CHIPS funding, but squaring the circle on chips fund deployments and the administration’s IPEF strategy, while easier said than done, offers long-term strategic benefits. In other words, having adopted an aggressive approach to reshoring via industrial policy, the administration should now put more weight on supporting “friend-shoring”.
From the concluding statement of this report: “Against the backdrop of increased tensions with China, the United States is reinvigorating industrial policy through the CHIPS and Science Act and building a new regional trade architecture with partner countries through IPEF. With this two-part solution, the United States is working to strengthen its semiconductor supply chains at home and abroad through collaboration with partner countries. Commensurate with the pursuit of industrial policy is the increased infusion of national security into the economic and trade policy realm. One part of this securitization of trade policy relates primarily to inbound goods that constitute critical parts of supply chains, ranging from medical devices to downstream consumer goods such as smartphones. The other major security concern relates to outbound items, particularly exports of dual-use goods with both military and civilian uses. The IPEF supply chains pillar offers an opportunity to mitigate both types of risk.”
CHIPS+ and Its Consequences for Regional Innovation
“Particularly consequential for regional innovation are two complementary provisions in Division B of the CHIPS and Science Act.”
Back in October 2022, Gregory Arcuri Program Manager and Research Associate in the Renewing American Innovation Project at the Center for Strategic and International Studies), provided this really succinct breakdown of the consequences for regional innovation in the U.S. based on the following ongoing legislation made law in late 2022:
“The CHIPS and Science Act, (CHIPS+) signed into law in August 2022, represents a significant bipartisan commitment to renew the nation’s innovation system. Along with the related investments included in the Bipartisan Infrastructure Law and the Inflation Reduction Act, Congress has signaled with this legislation, a new push to spur innovation-led economic growth and national security. These policy initiatives also follow the American Rescue Plan Act of 2021, which includes $1 billion for Build Back Better Regional Challenge (BBBRC) grants that are designed to stimulate economic development in rural states and low-population regions. Taken together, a distinctive feature of this suite of legislation is the focus on connecting the nation’s regions—including in small towns and regional economies reliant on traditional economic activities—into the high-tech innovation economy.
Particularly consequential for regional innovation are two complementary provisions in Division B of the CHIPS and Science Act. These sections authorize funding for the NSF’s Regional Innovation Engines and the EDA’s Regional Technology and Innovation Hubs.
Funding Authorized for NSF’s Regional Innovation Engines
A key feature of CHIPS+ is that it authorizes dedicated funding for the National Science Foundation’s (NSF) Regional Innovation Engine program. Announced in March 2022, this is a marquee initiative of the new NSF Directorate for Technology, Innovation, and Partnerships (TIP). The “regional innovation engines” (also known as NSF Engines) are loosely defined as “regionally-centered multi-sector coalition[s] of partners across industry, academic, government, non-profits, civil society and communities of practice, all working together in a topic area of regional relevance, as well as national and societal significance.” These engines are meant to “drive R&D innovation to achieve regional economic growth” and “build an inclusive innovation ecosystem that will thrive for decades to come.”
NSF encourages award applicants to describe their “region of service,” the stakeholders involved, and a chosen topic that they seek to address through translational research and development. Funding opportunities for NSF Engines are divided into Type-1 and Type-2 awards, corresponding to how “mature” the engine’s surrounding innovation ecosystem is determined to be.
Type-1 awards, which can be up to $1 million for up to two years, are designed to enable prospective engines to “lay the groundwork” for the development of a successful regional innovation ecosystem. This money is meant for strategy development, defining the exact structure and scope of the engine’s activities. As of this writing, NSF is currently evaluating proposals for Type-1 awards.
Type-2 awards are far more substantial: up to $160 million for up to ten years. These awards are meant to drive translational research and technological development utilizing the partnerships and connectivity infrastructure—including shared research commons and workforce pipelines—among participating stakeholders in service of the identified topic. In doing so, the program hopes to spur buy-in from other players within the region and externally to create a self-sustaining innovation ecosystem. The first set of full proposals for Type-2 awards are due at the end of January 2023.
Such partnerships could include, for example, a state university partnering with an international corporation and a locally headquartered small technology firm. The grants would go towards scholarships at the university for a curriculum tailored to the needs of the local firm, providing regional talent for their research, which the large corporation can develop at-scale. CHIPS+ authorizes $6.5 billion from fiscal years 2023 to 2027 to be split between NSF’s Regional Innovation Engines and a Translation Accelerators program which is referenced in the bill. If appropriated, these funds would build out the scope of the NSF Engines program.
Department of Commerce Regional Technology and Innovation (RTI) Hubs
Acknowledging the need for broader participation in the U.S. innovation economy, Congress in CHIPS+ has amended the Stevenson-Wydler Act of 1980 to authorize $10 billion total from fiscal years 2023 to 2027 for a Regional Technology and Innovation Hub program. The program is to be carried out through the Department of Commerce’s Economic Development Administration (EDA) “in coordination with” the National Institute for Standards and Technology (NIST), although specific modalities of this cooperation are not described in the bill. The CHIPS+ legislation calls on the Secretary of Commerce to designate no less than 20 “regional technology and innovation hubs,” which are public-private consortiums made up of universities, economic development organizations, industry, rural communities, state and local governments, and nonprofits concentrated within a geographic area.
The legislation includes language that seeks to ensure the geographic distribution of these hubs. It specifies minimum requirements for designating hubs in every EDA region and sets priorities for creating hubs in low-population and predominantly rural states. The CHIPS+ version of the program differs from the version included in the Senate’s U.S. Innovation and Competition Act in that it prioritizes the inclusion of underserved communities and groups historically underrepresented in STEM fields, including women, people of color, and Indigenous communities. Grants for RTI hubs, like NSF Engines, are divided into two types: strategy development grants and strategy implementation grants.
Strategy development grants are designed to explore the workforce and connectivity needs of the prospective hub and to identify and grow regional partnerships. With $50 million authorized over four years Commerce is tasked with awarding at least 60 strategy development grants.
Strategy implementation grants are reserved for applicants who achieve an RTI hub designation. For these grants, Congress has authorized $2.95 billion for the first two fiscal years and $7 billion for the last two. Commerce may initially award up to $150 million to each hub, and no single hub may receive more than 10 percent of the aggregate amount of grants. These grants are meant to go towards a variety of different efforts, including workforce development programs, business development and entrepreneurial activities, collaborative research infrastructure, among others.
In awarding grants for the development and implementation of regional innovation strategies, CHIPS+ calls on Commerce to carry out a competitive, merit-review process, accepting applications from “eligible consortia” that explains how they will work to transform the area they serve into a locus for innovation and technological development.”
Additional OODA Loop Resources
The Inevitable Acceleration of Reshoring and its Challenges: The momentum towards reshoring, nearshoring, and friendshoring signals a global shift towards regional self-reliance. Each region will emphasize local manufacturing, food production, energy generation, defense, and automation. Reshoring is a complex process, with numerous examples of failures stemming from underestimating intricacies. Comprehensive analyses encompassing various facets, from engineering to finance, are essential for successful reshoring endeavors. See: Opportunities for Advantage
Computer Chip Supply Chain Vulnerabilities: Chip shortages have already disrupted various industries. The geopolitical aspect of the chip supply chain necessitates comprehensive strategic planning and risk mitigation. See: Chip Stratigame
The New Tech Trinity: Artificial Intelligence, BioTech, Quantum Tech: Will make monumental shifts in the world. This new Tech Trinity will redefine our economy, both threaten and fortify our national security, and revolutionize our intelligence community. None of us are ready for this. This convergence requires a deepened commitment to foresight and preparation and planning on a level that is not occurring anywhere. The New Tech Trinity.
Embracing Corporate Intelligence and Scenario Planning in an Uncertain Age: Apart from traditional competitive challenges, businesses also confront external threats, many of which are unpredictable. This environment amplifies the significance of Scenario Planning. It enables leaders to envision varied futures, thereby identifying potential risks and opportunities. All organizations, regardless of their size, should allocate time to refine their understanding of the current risk landscape and adapt their strategies. See: Scenario Planning
Track Technology Driven Disruption: Businesses should examine technological drivers and future customer demands. A multi-disciplinary knowledge of tech domains is essential for effective foresight. See: Disruptive and Exponential Technologies.
