Bridging Cultures: The Challenge of Transplanting TSMC’s Success to the U.S.

Taiwan Semiconductor Manufacturing Company (TSMC) is one of the world’s leading producers of advanced computer chips. In 2020, the company announced plans to build a facility in Phoenix, Arizona; a move that was expected to bolster U.S. chip manufacturing and reduce the nation’s reliance on foreign-made semiconductors.

However, four years later, TSMC has yet to commence full-scale production in Arizona, a fact that highlights the company’s significant challenges in adapting to the U.S. environment.

A New York Times article featuring several interviews, reveals the deep issues TSMC is facing:

“In recent interviews, 12 TSMC employees, including executives, said culture clashes between Taiwanese managers and American workers had led to frustration on both sides. TSMC is known for its rigorous working conditions. It’s not uncommon for people to be called into work for emergencies in the middle of the night. In Phoenix, some American employees quit after disagreements over expectations boiled over, according to the employees, some of whom asked not to be named because they were not authorized to speak publicly.”

But here is the main issue:

“Another engineer said he sometimes shared the Americans’ frustration with the hierarchy, discipline, and long hours. But these things, he believed, had enabled TSMC to surpass its competitors to become the chip leader. ‘Everything comes from working hard. Without this culture, TSMC cannot be number one in the world,’ he said with passion. ‘I want to support TSMC to be great. It’s my religion.’”

“It’s my religion.”

“Without this culture, TSMC cannot be number one.” 

The current employees seem to believe that the firm’s culture is integral to their ability to become number one.

I neither agree nor disagree with this statement. 

I’m just documenting the fact that the employees believe that culture is not merely an appendage that is nice to have and maintain. It is what enables their success.

Even more important, TSMC’s challenges in Arizona, highlight how tough it can be to transfer a successful business model to a different cultural and operational setting.

In Taiwan, TSMC benefits from a highly skilled workforce, deep relationships with suppliers, and government support, all of which contribute to its operational efficiency. In America, the company has found it challenging to replicate these conditions as it has encountered difficulties recruiting and retaining skilled workers, managing cultural differences between Taiwanese managers and American employees, and navigating U.S. regulations.

But TSMC is NOT the first successful firm to build a plant in America.

So while the article of the NYT is great in terms of providing detailed interviews, I find the overall approach intellectually lazy, for both the NYT and TSMC. 

To succeed in a new location, one must adapt. If you can’t adapt, blame yourself, not the country you’re moving to and the culture of its employees. 

Understanding TSMC’s Culture Using Schein’s Model

But let’s first understand TSMC’s culture:

“TSMC’s work culture is notoriously rigorous, even by Taiwanese standards. Former executives have hailed the Confucian culture, which promotes diligence and respect for authority, as well as Taiwan’s strict work ethic as key to the company’s success. Chang, speaking last year about Taiwan’s competitiveness compared to the U.S., said that ‘if [a machine] breaks down at one in the morning, in the U.S. it will be fixed in the next morning. But in Taiwan, it will be fixed at 2 a.m.’ And, he added, the wife of a Taiwanese engineer would ‘go back to sleep without saying another word.’”

To understand culture, I mostly use Schein’s model, which divides culture into a hierarchy of the following elements: artifacts (visible and with little impact when altered), values (less visible, but more impactful), and underlying assumptions, which are taken for granted (usually not visible at all, but absolutely crucial to maintain).

In the case of TSMC:

Artifacts

Long Working Hours and Intense Work Environment: TSMC is known for its demanding work culture, where long hours and a high level of commitment are expected. This is visible in the company’s work schedules, performance expectations, and the intensity of the work environment.

Detailed Process Documentation and Strict Quality Controls: TSMC’s commitment to rigor is evident in its meticulous process documentation, strict adherence to procedures, and exhaustive quality control measures. The company’s production processes are designed to minimize errors and defects, reflecting a culture of precision and thoroughness.

Values

Discipline and Dedication: TSMC values a disciplined approach to work, where employees are expected to demonstrate high levels of dedication.

Attention to Detail: The value placed on rigor at TSMC is reflected in the company’s emphasis on attention to detail. Whether in the design and manufacturing of semiconductors or in internal processes, there is a strong focus on ensuring that every aspect of work is done meticulously.

Continuous Improvement: TSMC values continuous improvement. This means not only working hard but also constantly striving to enhance processes, reduce errors, and achieve higher levels of precision.

Underlying Assumptions

Success is Built on Hard Work: TSMC operates under the assumption that sustained hard work is essential for maintaining its competitive edge. This belief is ingrained in the company’s culture and drives the expectation that employees must be willing to put in the necessary effort to achieve success.

Perfection is Achievable: Another underlying assumption at TSMC is that perfection, or near-perfection, is not only desirable but also achievable. This belief underpins the company’s rigorous quality standards and the relentless pursuit of excellence in every aspect of its operations.

Adapting these values to different contexts while maintaining their core essence is key to TSMC’s ability to excel in a demanding industry. But I don’t find any of these unique or antithetical to the culture of other firms that have successfully adapted to the U.S.

The emphasis on hard work and rigor at TSMC is comparable to the cultural values seen in Japanese automotive firms, such as Toyota, particularly when they expanded to America.

So, let’s understand what made Toyota’s move to the U.S. successful.

The Transferability of Japanese Work Culture to the U.S.: Lessons for TSMC

When Toyota (among other Japanese automotive companies) began establishing plants in the U.S. during the 1980s, they encountered similar issues to those TSMC faces now. The study “Organisation vs. Culture: Japanese Automotive Transplants in the U.S.” by Richard Florida and Martin Kenney provides several interesting insights into this phenomenon, which can be applied to TSMC’s situation.

The central question of the study was whether Japanese work organization and industrial relations, deeply rooted in Japan’s culture, could be transferred successfully to the U.S. The researchers conducted a comprehensive analysis of seven major Japanese automobile assembly plants and over 270 Japanese automotive parts suppliers that were established in the U.S. They used a combination of a detailed database, extensive field research, including case studies and interviews, and a mail survey of transplant suppliers to explore how Japanese production practices were adapted in the U.S. context.

The study found that the Japanese system of work and production organization, particularly the Just-In-Time (JIT) system and team-based work organization, could indeed be successfully transferred to the U.S.

However, the transfer was not without modifications. For example, while core elements like work teams, job rotation, and quality control were effectively implemented, other aspects such as wage determination, job security, and union relations had to be adjusted to fit U.S. standards. The transplants generally avoided serious worker adaptation problems or labor unrest, mainly due to the careful selection of workers and environments conducive to Japanese practices.

According to the paper, the key drivers of success were:

Careful Selection of Locations and Workforce: The Japanese companies strategically chose rural and semi-rural locations for their plants, which were less likely to have strong union presence and offered a more amenable workforce to Japanese work practices. This strategy minimized labor conflicts and made instilling the Japanese work ethic and production systems easier.

The companies also implemented rigorous recruitment processes to select workers who would fit well within the team-based and highly disciplined Japanese work culture. This involved looking for individuals with good work ethics, reliability, and the ability to work well within a team.

Comprehensive Training and Socialization: Japanese transplants placed a significant emphasis on training and socialization of the workforce. Newly hired employees underwent extensive training programs that not only taught them the technical skills required for the job but also immersed them in the Japanese work culture.

This training included trips to Japan for managers and selected workers to learn directly from Japanese plants, ensuring that they could bring back and implement Japanese work practices in the U.S. environment.

Adaptation to Local Labor Conditions: While the Japanese transplants maintained core elements of their production systems, they also made critical adjustments to fit U.S. labor laws and regulations. For instance, they adapted wage determination practices by offering more standardized wages instead of the highly individualized pay systems common in Japan.

The companies also made concessions to local labor expectations, such as providing more structured promotion paths and ensuring job security in a way that resonated with American workers.

Retention of Core Japanese Production Principles: Despite the cultural and operational differences, Japanese transplants retained the core principles of their production system, such as Just-In-Time (JIT) manufacturing, team-based work organization, and continuous improvement (kaizen). These principles were critical in ensuring that the transplanted operations could achieve high levels of efficiency and quality comparable to their Japanese counterparts.

The experience of Japanese automotive transplants suggests that TSMC could achieve greater success in its U.S. operations by carefully considering the local context and making necessary adjustments to its management and operational practices. While TSMC’s strict, Taiwan-based work culture may clash with American norms, as evident from the challenges at its Arizona plant, Japan’s success story shows that with the right approach, cross-cultural transfers are possible.

For TSMC, this might mean developing a hybrid model that integrates the rigor and efficiency of its Taiwanese operations with a more flexible and culturally adapted management style suited to the U.S. workforce. This could involve greater emphasis on employee engagement, localized training programs, and adjustments to work-life balance expectations to align better with the American culture. 

One of the study’s key points is the importance of selecting the right workers and creating an environment that supports transplanted practices, which could be crucial for TSMC’s long-term success in the U.S.

The Toyota Production System: A Blueprint for Cross-Cultural Manufacturing Success

The issue with selectively adapting the culture and the system is that it requires understanding what truly drives success.

The fact that TSMC’s model works in Taiwan doesn’t mean that every component is necessary for success.

The success of Toyota’s expansion to the U.S. can be attributed to its unique production system, which combines strict operational standards with a high degree of flexibility and a strong emphasis on continuous improvement. According to the study “Decoding the DNA of the Toyota Production System” by Steven Spear and H. Kent Bowen, the Toyota Production System (TPS) is built on four foundational rules that guide how work is done, how people connect, how the production line is constructed, and how improvements are made.

Spear and Bowen sought to understand why so few companies outside of Toyota have successfully replicated the TPS despite its transparency and extensive documentation. The study involved a detailed examination of over 40 manufacturing plants across the U.S., Europe, and Japan, comparing those that adopted the TPS with those that didn’t.

The research revealed that the success of TPS lies not in the specific tools and practices, such as kanban cards or quality circles, but in the underlying principles that govern all aspects of the production process. These principles ensure that every activity is seen as an experiment, with clearly defined hypotheses that are constantly tested and refined. This scientific approach to problem-solving fosters a culture of continuous improvement and allows Toyota to adapt its operations to different environments without losing the core benefits of its production system.

Integrating Human Resources with Manufacturing Strategy: Insights from Flexible Production Systems

Another key to Toyota’s success in the U.S. has been the integration of human resource practices with its production strategy —a concept that my Wharton colleague John Paul MacDuffie explores in his study: “Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry.”

MacDuffie aimed to test the hypothesis that bundles of interrelated HR practices, rather than individual practices, are critical to achieving high performance in flexible production systems. The study utilized survey data from 62 automotive assembly plants worldwide, analyzing the relationship between HR practices and manufacturing performance.

The study found that the most effective HR practices are those that are integrated into the overall production strategy. In flexible production systems like Toyota’s, minimizing buffers and fostering employee motivation and skill development, are key to maintaining high levels of productivity and quality. The integration of HR practices with manufacturing practices creates a mutually reinforcing system that drives continuous improvement and operational excellence.

In the paper, the HR practices that are integrated with the manufacturing method, particularly in the context of flexible production systems, are described as “bundles” of interrelated and internally consistent HR practices that support the manufacturing process. 

Examples of such practices include:

Multi-skilling and Job Rotation:

These practices involve cross-training workers to perform multiple tasks and rotating them across different jobs. This approach ensures that workers have a broad skill set and can adapt to different roles within the production process. By integrating multi-skilling with job rotation, the manufacturing system becomes more flexible and resilient, as workers can step into various roles as needed. This is particularly important in a lean production environment where buffers are minimized.

Team-Based Problem Solving:

In flexible production systems, teams of workers are often responsible for identifying and solving production problems. This practice is integrated with the manufacturing process as it decentralizes responsibilities like quality control and maintenance, pushing these tasks to the team level. This integration not only increases worker involvement but also enhances the manufacturing system’s responsiveness to issues that arise in the production line.

Extensive Training and Skill Development:

HR practices in flexible production systems include providing extensive training, both on and off the job, to develop workers’ skills and conceptual understanding of the production process. This training is crucial for enabling workers to take on a more proactive role in problem-solving and continuous improvement efforts, which are key components of lean manufacturing.

Employee Involvement and Suggestion Systems:

Employee involvement practices, such as suggestion systems where workers can propose improvements to processes, are integrated with manufacturing methods to drive continuous improvement. These systems are designed to tap into the workers’ insights and encourage a culture of ongoing innovation and efficiency.

These HR practices are not implemented in isolation but are designed to be mutually reinforcing, creating a synergistic effect that enhances both the flexibility and efficiency of the production system. The integration of these practices with manufacturing methods ensures that workers are motivated, skilled, and capable of contributing to the continuous improvement of the production process, which is essential in a lean or flexible production environment.

For TSMC, the findings suggest that a more integrated approach to HR management could help address some of the cultural and operational challenges it faces in Arizona. By developing HR practices that align with its production strategy and are tailored to the U.S. workforce, TSMC could enhance employee engagement, reduce turnover, and improve overall performance at its Arizona plant.

I’m not saying it’s simple, but if TSMC is truly committed to being successful in the U.S., it needs to adapt its practices. By aligning its HR practices with the U.S. cultural context, and integrating them with the operational processes and norms, TSMC can overcome the challenges it’s currently facing and achieve greater efficiency and integration in its new environment.

Conclusion

TSMC’s struggles in Arizona reflect broader challenges in transferring established production practices across cultures. The experience of Japanese automotive transplants offers valuable lessons in balancing core operational standards with the flexibility needed to adapt to a different cultural and regulatory environment. By learning from these precedents and being open to modifying its practices, TSMC can better navigate the complexities of operating in the U.S. and enhance its chances of replicating its success in this new setting.

One of my favorite mantras is, “It’s not the employees’ fault.” You hired them, trained them, and gave them the processes they needed to follow and the metrics they needed to meet. If they fail, it’s first and foremost your failure.