Learning Checklist – WHY YOUR COMPANY NEEDS A FOREIGN POLICY – CLASS 2 – 1 ST DECEMBER

How do corporate executives see geopolitics today? Which are the most critical scenarios?

Corporate executives see geopolitical risk as the greatest challenge facing their business. Most critical
scenarios appear to be: Russian territorial claims, Chinese territorial claims, ISIL’s advances, the internal
politics of Africa and Latin America.

In this situation, which is going to be the most effective and relevant capability for a multinational
corporation?

In this new reality, the most successful multinational companies will be those that make expertise in
international affairs central to their operations, adopting what can best be described as a corporate foreign
policy. Such a policy will have two goals: to improve a company’s ability to operate in foreign environments
through effective corporate diplomacy, and to ensure its success wherever it is engaged through careful
geopolitical due diligence.

Which has been so far the attitude of MNCs towards political/geopolitical issues?

Avoiding politics – standing above or apart from the political fray – was the preferred method of protecting
interests and advancing reputation.

What has been changing to generate this disruption?

The decline of US intervention: the world will be less stable as a result.

Increase in economic sanctions: the reach of US sanctions is particularly powerful, as non-US companies
worry that their ability to trade in the United States may suffer if they sustain trade relations with countries
or entities sanctioned by Washington.

Increase in south-south trade: the uncertainty of domestic politics in high-growth markets poses specific
geopolitical challenges. The volatility of domestic politics in these markets and the absence of the West as
intermediary set the need to understand not just West foreign policy but also internal politics of the
specific country in which the company has to operate and its relations with other high-growth market
countries.

Are sanctions relevant in explaining the new trend?

Yes. See above.

Is the World economy becoming more fragmented? And how is this impacting on MNCs?

Yes, adding to the climate of destabilization, the absence of a clear “world policemen”, as well as with few
effective “neighbourhood watch” schemes, and a growing number of vigilante groups as well as countries
eager to challenge the rules of the game, many parts of the world look and feel unstable. Companies
cannot assume, in any region of the world, that the strategic status quo will be sustained by neat balances
of power or unbreakable promises of foreign policy assistance from superpower states. To navigate this
geopolitical complexity, companies have to “privatize” foreign policy: they have to define interests, collect
and analyse external intelligence, find regional and local allies, and cultivate an environment conducive to
success. They must be mindful of the cultural conditions in which they operate, adapting their style of
engagement as necessary while remaining true to their moral principles.

How has to change the process of companies’ due diligence?

Geopolitical due diligence needs to occur not just at the country level but at other levels and in other
spheres as well.
Which kind of risk companies should become used to deal with?

Geopolitical risk, transnational risk, regional/local in-country risk, near-abroad risk.

What have companies to do in order to develop their effective foreign policy?

Companies have to assess transnational risk, pay attention to regional political trends, assess local in-
country risk, don’t neglect home and near-abroad risk. Plus companies have to develop their corporate
diplomacy in order to operate internationally and to ensure success in each particular country with which
business is engaged.

Learning Checklist – GEOPOLITICS AND TECHNOLOGY: RESHAPING THE GLOBAL SEMICONDUCTOR

INDUSTRY – CLASS 2 – 1ST DECEMBER

When the SC shortage took place?

Since the start of 2020, with the outbreak of the Covid-19 pandemic, until the second half of 2022.

Which were the mostly hit industries?

SC-intensive industries including electronic appliances, computers, smartphones and automotives, plus the
military sector.

Which are the four main reasons for the shortage in the SC market? Which one you think is the most
impactful and dangerous in perspective?

- A temporary drop in the demand from SC at the start of the Covid-19 pandemic due to the decline
In global demand
- An immediately consecutive increase in the demand for SC-incentives devices like laptops and
smartphone for smart-working
- The severe lockdowns in Asian countries that negatively impacted on production
- Geopolitical tensions degenerating into a trade war between the US and China

The most impactful and dangerous in perspective is the fourth, the first three causes all related to the
pandemic situation which is as critical as it was during the last years, on the other hand the geopolitical
conflict has the potential to escalate any moment.

Why SC are considered indispensable? What is a general-purpose technology?

Because they are essential components of everyday devices used worldwide. A general-purpose technology
is something that has almost infinite applications.

Are SC all the same? Which is the main source of the difference among different categories of SC?

No, they can be classified as low-, medium- and high-tech semiconductors. Their technological “intensity”
affects the SC’s speed, reliability, and cost, and therefore determines its final use. The difference depends
roughly on the degree of chip miniaturization.

Concerning the structure of SC industry, which are the two main “models” of its organization?

The integrated fabrication system sees all production phases carried out in-house.

The fabless production is done by external companies, which are often geographically distant.

Was the SC industry an example of a “global production”? Why?

Yes, before the US-China tensions the semiconductor industry was a globalized industry and each player
played a key role in making chips possible without repeating other people’s investments.
Which are the main sources of disruption of the SC industry today?

A brutal capital intensity, growing geopolitical risk, amid geoeconomic and geopolitical clashes.

Why is capital intensity rising to such an extent?

Because to transform designs into actual chips, especially for minimizing dimensions, cutting-edge
technologies are difficult to develop and extremely expensive to translate into mass production. The
production of high-technology chips is increasingly concentrated in factories whose number has steadily
shrunk over the last two decades.

Where is the production of high-end SC concentrated? Who are the three main producers?

It is concentrated mainly in Asia (only 20% outside), the leading firms are TMC, Samsung and Intel.

How do you comment the geopolitical risk in SC production? Which are the main reasons? Why such a risk is
on the rise?

The geopolitical risk in SC production is particularly alarming because it entails several related issues:

- The trade war between US and China,

- The side effects of the above conflict that influences other countries’ position as well as impact
both US and non-US firms,
- The tensions between China and Taiwan (where TMC is located) which is under constant threat of
invasion.

The cause of this geopolitical risk is essentially the strategic importance of SCs for military purposes: the
trade war started by the US is in fact due not only to the growing-economic power of China, but also to the
fact that the USA wants to prevent the Chines government to use US developed and manufactured
technology in order to advance their military power.

Is Taiwan a risky place?

Yes, the island is under the constant threat of Chinese invasion.

What do we mean for techno-nationalism? Why is it impacting on SC global value chain?

Techno nationalism is the idea that cross-border technological exchanges are directly linked to a country’s
national security, therefore a nation must strongly intervene against opportunistic or hostile state and
nonstate actors from other countries. Under new techno-nationalism, country leaders seek to attain
geopolitical gains, building on the premise that the world has entered a new era of systemic rivalry
between competing geopolitical powerhouses that differ markedly in ideological values, political systems,
and economic models.

Which are the main strategies the US is putting in place in order to limit the Chinese access to cutting edge
SC technology? What is the FDPR?

Companies bans, chip export controls, severe control by the Committee on Foreign Investments in the
United States (CFIUS) against Chinese buyers, FDPR, Chips Act.

FDPR = Foreign Produced Direct Product Rule, aimed at blocking exports of SC and SC production
equipment made using technologies of US origin (design and machine tools), even if actually manufactured
outside the us.

Why Governments are increasingly active in the SC industry? Which are the goals of the active industrial
policies put in place by national governments?
The philosophy underpinning government actions combines techno neo-nationalism with the need to
ensure the supply of essential components for both civilian and military purposes, building up their own
manufacturing ecosystems is an absolute necessity for all the willing-to-be Great Powers.

Will CHIPS acts be effective in your opinion? Which is a potential risk of trying to weaken the Chinese SC
industry?

Chips acts can be effective as long as the incentives offered are the best ones given also the opportunities
that companies can face by developing their operations in that country/area.

A risk can be war escalation: if the chines industry would be irremediably weakened, what would prevent
the chines government to invade Taiwan in order to gain control of the industry lead?

Furthermore the US restrictions can eventually backfire. The declining production of SCs in China will for
sure impact on Western final end manufacturers for instance in the electronic appliances or automotive
industry, since now more than 50% of medium-tech SC are produced by Chines companies. And finally on
final customers.

Which will be the main strategic opportunities for companies in the industry given the presence of
governmental intervention? Are there also risks to be taken into account?

Opportunities are growing for companies producing chipmaking equipment, since more and more countries
will try to expand their domestic production capacity.

Risk to be taken into account: the whole process will require a careful reconsideration of production costs
functions. Chips will become more expensive due to the forced relocation of production in friendly, but
expensive in terms of cost of labour. All this said, an effective decoupling is already visible in the
semiconductor once-global value chain, and, from a pure economic point of view, it’s going to be a lose-
lose game, for everyone.