Macroeconomics plays a critical role in operation of any business as prevailing economic conditions affect individual businesses as well. Entrepreneurs and others business people must take these factors into consideration as part of their market analysis.
As one example, the reduction or increase in demand for products affects decisions to expand or scale down their rate of production. Macroeconomics is intertwined with business because business is affected by the factors that constitute macroeconomics. Macroeconomics deals with issues relating to factors that affect the economy, including areas like the rate of unemployment, inflation, business cycles and Gross Domestic Product (GDP).
In this blog, I will explain the role of macroeconomic cycles and how it relates to business models prevalent in semiconductor industry. The semiconductor industry in United States has undergone transformation from a few integrated device manufacturers (IDMs) to several fabless companies. The fabless-foundry business model has led to transformation of US semiconductor industry.
However, the fabless-foundry business model violated common sense macroeconomic parameters, and the macroeconomic losses to US economy began to outweigh the microeconomic benefits from the approach. The US semiconductor industry began offshoring labor-intensive manufacturing operations in the 1960s, followed in the 1970s and 1980s by increased offshoring of complex operations, including wafer fabrication and some research and development (R&D) and design work. Although offshoring of labor-intensive semiconductor jobs from US to Japan had started way back in 1960s, the macroeconomic losses then were minimal due to prevalent free market capitalism in US.