Geopolitical Tensions Mean CDOs Need To Rethink DX
- By Lachlan Colquhoun
- August 29, 2022
The lingering threats to Taiwan’s world-leading semiconductor industry have been in plain sight for many years. But the heightened tensions with Beijing have emphasized that geopolitical risk is now part of the technology equation for many organizations.
Taiwan’s TSMC is a critical part of the global supply chain for many industries. Therefore, any disruption to production and supply would severely affect critical industries such as the automotive sector. Perhaps it was with this in mind that Taiwan’s number two chipmaker UMC recently announced it is building a production plant for chips in Japan with Denso, which is part-owned by Toyota.
The geopolitical tensions were almost certainly driving U.S. lawmakers to pass the Chips and Science Act, a USD280 billion bill to boost American semiconductor manufacturing, and are behind August meetings between U.S. and Japanese officials on cooperation in the semiconductor industry.
“At present, Taiwanese foundries such as TSMC account for more than 90% of the global advanced semiconductor manufacturing capacity,” the joint statement between the two governments said.
“The intention of the United States is to avoid the geopolitical risk by combining its design and development capabilities with Japan’s strength in equipment and materials.”
Almost as the statement was released, China answered with an announcement sure to rachet up the semiconductor arms race. China’s Semiconductor Manufacturing International Corporation (SMIC) has reported using 7-nanometer technology to build bitcoin mining chips, a significant advance over the 14nm process currently in use.
The chips war is critical, but it is not the only example of how geopolitical issues drive industry and technology decisions. There is the rare earth industry, where China has long been a major supplier. Now, the U.S. is responding with an alliance with Australia and with Australian companies, such as Lynas, to ensure the supply of rare earths for use not just in the industry but also for military and defense.
The specter of the Huawei controversy, which has seen the Chinese equipment manufacturer banned from network markets in many western countries, is still simmering away. But it has also gone into a new phase with concerns over the penetration of IoT devices and systems by two other Chinese companies, Hikvision and Dahua, both of which have been blacklisted by Washington.
In 2022, the idea of sovereign capability extends to technology as much as it does to overtly military activities such as shipbuilding.
Beyond the chip war
It is not only organizations dependent on Taiwanese semiconductors which need to factor geopolitical risk into their technology decisions.
According to a recent research report from Gartner, 41% of Boards of Directors view geopolitical power shifts and turbulence as significant risks to their performance.
Gartner estimates that 70% of multinational enterprises will hedge their risk and adjust the countries they operate in and are exposed to.
“Digital geopolitics is now one of the most disruptive trends that CIOs must address”
In I.T. terms, this means understanding the risks of data center locations and cloud providers and, as a priority, making sure there are no risks in accessing proprietary data and that the data is secure.
“Digital geopolitics is now one of the most disruptive trends that CIOs must address, with many now dealing with trade disputes, legislation coming from one country that impacts global operations, and government imposed restrictions on the acquisition and use of digital technology,” says Brian Prentice, vice president analyst and Gartner Fellow.
“They need to get acquainted with this new reality and prepare for its impact.”
According to Gartner, technology leaders need to play a key role in assessing corporate risk and, where required, re-architecting digital systems and infrastructure in response.
Sovereignty and self-sufficiency
Two key facets of the response are digital sovereignty and the localization of capability as globalization risks rise.
On sovereignty, Governments have already started with privacy laws, which has added to the compliance and governance obligations of organizations that work across jurisdictions.
For technology leaders, this means they need to ensure their operating model and business processes are in sync with local regulations, both in day-to-day business but also in any reporting obligations.
The perceived retreat from globalization also makes local capability a priority for many nations and organizations, as seen in the U.S. response to the semiconductor issue.
Now, the local technology industry is not just a driver of economic growth and employment but a sovereign capability and business continuity issue.
Gartner advises that CIOs need to engage with governments moving in this direction. They can have productive engagements with the government, influence the outcome and be a part of the national solution. After all, governments are not IT experts and need local expertise to make the right decisions.
Cyber a priority
Beyond this is perhaps the critical emerging issue of the governance of cyberspace.
Gartner’s point is that national competition for control over cyberspace will significantly impact any organizations that do business or have a supply chain that crosses borders.
Governments are increasingly concluding that they need a protected national digital infrastructure.
“The machinations by Governments for control over cyberspace governance are beyond the influence of CIOs, but they will have profound impacts on a business's ability to operate internationally,” Gartner says.
The implication is that geopolitical risks have found their way onto the CIOs priority list for the first time in many years, coming after an unprecedented period of globalization. Then the digital revolution, the risk factors are unprecedented and require a whole new framework.
The organization might be totally geared to be a global business. Still, the digital ramifications are increasingly complex as the world navigates its way through perhaps the tensest geopolitical environment since the Cold War.
Lachlan Colquhoun is the Australia and New Zealand correspondent for CDOTrends and the NextGenConnectivity editor. He remains fascinated with how businesses reinvent themselves through digital technology to solve existing issues and change their entire business models. You can reach him at [email protected].
Image credit: iStockphoto/Mihaela Rosu