A country may have billions of dollars to build advanced factories, attract engineers and experts, and provide the infrastructure needed for production. Yet it may discover that the success of its industrial project depends on a machine it cannot manufacture itself and can buy from only one supplier.

This is not a far-fetched scenario, but a dilemma facing the semiconductor industry, whose electronic chips are used in phones, cars, data centers, and artificial intelligence systems.

Behind this global industry lies a highly complex network of specialized companies. While countries compete to attract chip factories, less well-known companies possess technologies that are difficult to do without.

This raises an important economic question: How can a single technology become critical to an entire global industry?

A machine that is not easily replaced

One of the topics covered in the International Business course taught by Dr. @Stephen Rosenbaum at Al Yamamah University is the semiconductor industry's reliance on specialized suppliers with highly complex technologies.

In this context, the Dutch company ASML stands out. It specializes in manufacturing equipment used to produce electronic chips and is the sole supplier of extreme ultraviolet lithography systems (Extreme Ultraviolet Lithography – EUV).

These systems use light to etch extremely precise patterns onto silicon wafers, making it possible to produce some of the most advanced electronic processors.

ASML itself, however, relies on other companies to supply essential components, including the German company Carl Zeiss SMT, which specializes in manufacturing the precision optical systems these machines require.

This means that having the financial resources to build a chip factory is not necessarily enough to operate it. The factory also needs equipment, technologies, and components that are not readily available from alternative suppliers.

When a technological advantage becomes a bottleneck

This case illustrates the concept of supply chain bottlenecks (Supply Chain Bottlenecks): stages where disruptions or limited production capacity slow down the other activities connected to them.

If an advanced factory needs equipment made by only one supplier, its ability to expand becomes dependent on that supplier's production capacity, even if it has the necessary funding, land, and workforce.

This problem differs from shortages of conventional raw materials; some advanced equipment cannot simply be replaced by finding a cheaper supplier. Developing alternatives may require years of research, testing, and massive investment.

This scarcity gives specialized companies economic and strategic importance that extends beyond their size relative to companies selling finished products.

At the same time, it creates risks for the entire industry: a disruption at a specialized supplier could affect the expansion and production plans of many companies.

What does this experience mean for Saudi industries?

The chip industry offers an important lesson for countries seeking to develop advanced technology industries, including Saudi Arabia.

Building industrial capabilities goes beyond establishing factories or attracting global companies. It also means understanding the core technologies on which the industry depends, identifying suppliers that are difficult to replace, and developing long-term partnerships that ensure access to specialized knowledge and equipment.

This experience also shows that industrial opportunities are not limited to manufacturing the final product. A company specializing in a precision component or a particular technology can gain global importance, even if its name does not appear on the product that reaches consumers.

So, when developing a new industry, the question is not only what a country can produce, but also what technologies it needs, how well it can access them, and which specialized activities it can build a competitive advantage in.

Academic reference:

https://www.tandfonline.com/doi/full/10.1080/00207543.2026.2711894