THE LONG VIEW

Bottom Line Up Front: Taiwan’s aggressive push to localize semiconductor supply chains—driven by AI demand, U.S.-China tensions, and decarbonization—is creating new domestic champions but simultaneously threatens to fragment global supplier ecosystems, displace long-standing foreign vendors, and trigger retaliatory localization efforts elsewhere. Threat Identification: The rapid ascent of non-traditional, locally based Taiwanese suppliers into advanced semiconductor materials and equipment sectors (e.g., CMP pads, ultra-pure chemicals, die bonders) disrupts established global supply hierarchies dominated by Japanese, U.S., and European firms like Sumitomo, DuPont, and Tokyo Ohka Kogyo. This shift is institutionalized through TSMC’s procurement policies favoring local qualification and sustainability metrics, accelerating dependency on regional networks [Nikkei Asia, 2026]. Probability Assessment: High likelihood within 1–3 years (2026–2029). Since 2020, semiconductor-related revenue at companies like C Sun surged from 4% to ~50% by 2025, while 19 of 77 new listings on Taiwan exchanges in 2025 were chip-related [Nikkei Asia, 2026]. TSMC’s active support for local suppliers—including dedicated procurement units and technology upgrading programs—ensures continued momentum. Parallel expansions in Arizona by Sunlit Chemical and Chang Chun Group indicate this model may replicate abroad, increasing pressure on non-local incumbents. Impact Analysis: - Market fragmentation: Regional silos may emerge, reducing economies of scale and increasing costs for multinationals unable to access localized innovation. - Competitive displacement: Firms like DuPont face erosion in niche markets (e.g., CMP pads), where Praise Victor Industrial now supplies multiple chipmakers [Nikkei Asia, 2026]. - Innovation redirection: Local R&D roadmaps (e.g., G2C+ Alliance) may prioritize Taiwan-specific needs over global interoperability. - Geopolitical feedback loop: Localization success in Taiwan could prompt similar policies in the U.S., EU, or South Korea, further balkanizing supply chains. Recommended Actions: 1. Conduct supplier diversification audits to assess exposure to Taiwan-centric supply networks. 2. Establish technical partnerships with emerging Taiwanese vendors to maintain influence and access. 3. Invest in traceability and sustainability infrastructure to meet TSMC-style procurement standards globally. 4. Monitor IPO trends in Taiwan’s semiconductor support sector—valuations of firms like HonPrecision Inc. (+136% since listing) reflect investor confidence in localization gains [Nikkei Asia, 2026]. Confidence Matrix: - Threat Identification: High confidence — Supported by multiple company case studies and executive statements. - Probability Assessment: High confidence — Backed by financial data, market trends, and corporate strategy disclosures. - Impact Analysis: Medium-High confidence — Extrapolated from current trajectories; subject to moderation via international cooperation. - Recommended Actions: High confidence — Based on observable best practices in supply chain resilience and vendor engagement. [Citation: Cheng Ting-Fang, “Taiwan's push for supply chain security produces unexpected winners,” Nikkei Asia, January 21, 2026.] —Marcus Ashworth