CASE 05
TSMC, Water, and the 2021 Drought
When an excellent corporate citizen is the reason someone else goes without
In 2021 Taiwan had its worst drought in more than half a century. Tens of thousands of hectares of farmland were ordered to stop irrigating. Households in central Taiwan lost their water supply two days a week. The semiconductor fabs kept running. This is not a case about a company that behaved badly — by most published environmental measures TSMC performs better than almost any manufacturer of comparable scale. It is a case about what a company owes when its mere existence reorganises how a country divides a resource that everyone needs.
Course anchor
Ch. 6 incl. LO 6.2 green management + Ch. 7–18
Case period
2020 – present (recurring)
Decision point
Spring 2021 — who stops using water first
This is the bank’s green management case. It is the only one that exercises Learning Objective 6.2 — the four shades of green (Exhibit 6.3) and the methods for evaluating green management actions. It is also the only case set in Taiwan, which makes it the hardest one to analyse dispassionately. Read C.3 carefully before you start.
What this case is designed to teach
After analyzing this case, you should be able to:
- Apply the four shades of green (Exhibit 6.3) to a firm that sits in different shades on different dimensions at the same time — and explain why a single label is inadequate.
- Evaluate green management the way Ch. 6 says to — company-issued reports, ISO 14000, sustainability rankings — and then identify what those instruments systematically fail to capture.
- Analyze responsibility for an outcome the firm did not decide. TSMC did not order farmers to stop irrigating. A government did. Work out whether benefiting from an allocation creates a duty toward those it disadvantaged.
- Distinguish three allocation principles — highest economic value, proportional sharing, basic needs first — and show what each implies about who loses in a shortage.
- Handle a case where the classical and socioeconomic views converge, because the firm’s commercial success is widely treated as a national interest. Explain why that convergence makes the ethical analysis harder, not easier.
- Assess a firm whose own improvement may worsen the system — the renewable-energy crowding-out problem — and say what follows for how corporate environmental performance should be measured.
Part A — The Case
Read the whole narrative before looking at the questions. Several figures in this case are approximate and are flagged; verify them before you use them.
A.1 Background: an island that depends on typhoons
Taiwan receives a great deal of rain — far more per year than the global average — and is nonetheless one of the more water-stressed places in the developed world. The reasons are structural: the island is small and steep, so rain reaches the sea quickly; rainfall is concentrated into a few months; reservoir capacity is limited and silting; and a large share of the annual supply arrives with typhoons.
That last dependency is the one that matters here. In 2020, for the first time since 1964, no typhoon made landfall on Taiwan. The rain that normally refills the reservoirs did not come. By the spring of 2021 Taiwan was in its most severe drought in roughly 56 years, with several major reservoirs — including those serving the science parks and the cities of central and southern Taiwan — falling to a small fraction of capacity.
Taiwan’s water is divided, very approximately, as follows: agriculture takes around 70%, domestic and municipal use around 20%, and industry around 10%. These proportions vary by year and by source; verify before citing. Hold them in mind, because the allocation decision that follows does not track them.
A.2 What a fab needs
Semiconductor manufacturing is not merely water-hungry; it is hungry for water of a particular kind. Wafers are rinsed repeatedly with ultrapure water — water from which essentially everything has been removed — because a single particle can destroy a chip whose features are measured in nanometres. Producing ultrapure water itself consumes raw water, and the process cannot simply be paused: a fab that stops is not a factory idling but a production line whose work in progress is destroyed.
TSMC’s water consumption is on the order of 150,000 tonnes per day across its operations, a figure that has grown with capacity. Verify the current figure from the company’s own sustainability report. The company also reports process-water recycling rates above 85%, among the highest in the industry.
Electricity matters as much. TSMC is Taiwan’s largest single consumer of electricity, using on the order of 6–8% of the island’s total and rising as advanced nodes demand more power per wafer. Verify; this figure moves every year.
A.3 Spring 2021: the allocation
Facing reservoirs that would not last the year, Taiwan’s government made a sequence of decisions. They were made publicly, by elected and appointed officials, under an established legal framework for water emergencies. TSMC did not make them. Note this carefully; much of the analysis turns on it.
- Agriculture was cut first and cut hardest. Beginning in late 2020 and extending through 2021, irrigation was suspended across large areas of farmland in Taoyuan, Hsinchu, Miaoli, Taichung and Chiayi — on the order of 70,000 hectares across successive phases, reported as the largest such suspension in Taiwan’s history. Verify the hectare figures and the phases. Affected farmers were offered financial compensation for fallowing their fields.
- Households were rationed next. By April 2021 parts of central Taiwan — including Taichung and Miaoli — were placed on a “five days on, two days off” supply schedule. Other regions faced reduced pressure and other restrictions.
- Industry was substantially protected. The science parks continued to operate. Firms were asked to reduce consumption at the margin and did so. TSMC and its neighbours supplemented supply by purchasing and trucking in water — a costly, visible, and widely photographed response — and accelerated investment in water reclamation.
The government’s reasoning was stated openly and is not unreasonable. A tonne of water used in a semiconductor fab generates vastly more economic value than a tonne used to irrigate rice. Taiwan was at that moment the indispensable node in a global semiconductor shortage. A halt at TSMC would have propagated through the world economy and through Taiwan’s tax base, employment, and strategic standing. Farmers, unlike fabs, could be compensated in cash for a season not planted.
The question this case is actually about
Allocating a scarce resource to its highest-value use is standard economics and, applied once in an emergency, is defensible. Applied as a rule, it has a consistent distributional consequence: the users who lose first will always be the least economically productive, who are also, reliably, among the least wealthy and least politically powerful. The farmers did not agree to be the adjustment mechanism. They were informed, and then paid. Whether that is sufficient is one of the things you have to decide.
A.4 What TSMC actually does — stated fairly
A report that treats this as a case of corporate environmental delinquency will be wrong on the facts and will be marked accordingly. On the standard measures, TSMC’s environmental management is strong and in several respects industry-leading:
- Water recycling at rates above 85% of process water, with published targets to go further, and investment in reclaimed-water plants that take treated municipal wastewater — water nobody else was going to drink — and make it usable for manufacturing.
- RE100 membership (joined 2020), committing to 100% renewable electricity, with the target subsequently brought forward. A net-zero commitment announced in 2021.
- One of the largest corporate renewable power purchase agreements in the world — a multi-hundred-megawatt offshore wind agreement signed in 2020. Verify the counterparty and capacity.
- Extensive public sustainability reporting, third-party assurance, ISO 14001 environmental management certification, and inclusion in major sustainability indices.
- Continuous process innovation to reduce water and energy intensity per wafer.
By Ch. 6’s own suggested methods for evaluating green management — company-issued environmental reports, ISO 14000 certification, appearance on sustainability rankings — TSMC performs well. That is precisely what makes the case difficult, and precisely why it is worth your time.
A technical distinction you must get right
Recycling rate is not the same as withdrawal. A firm can raise its recycling rate every year while its total water withdrawal also rises every year, because it is building more fabs. Both statements are true at once and they point in opposite directions. The same applies to energy: intensity per wafer can fall while absolute consumption climbs. Reports that treat an improving ratio as evidence of a shrinking footprint have made a basic error, and it is one of the most common errors in corporate environmental analysis generally.
A.5 The energy problem, and an unexpected side effect
Taiwan’s electricity is generated predominantly from fossil fuels, on a grid with limited reserve margin and a history of major outages. National policy has committed to phasing out nuclear generation while simultaneously expanding renewables and meeting fast-growing industrial demand — a difficult combination, and one over which TSMC has no control but on which it is entirely dependent.
TSMC’s response has been to buy renewable electricity at scale, which is exactly what a responsible large consumer is supposed to do. But this produces a consequence worth thinking about carefully. The supply of renewable generation in Taiwan is limited, and a single buyer with enormous purchasing power and a public RE100 commitment can contract for a very large share of what exists. Other Taiwanese firms — smaller manufacturers who face their own customers’ decarbonisation demands, and who have far less bargaining power — then find that the green electricity they need has already been bought, or has become more expensive.
The analytical prize in this case
A firm can improve its own environmental performance in a way that makes the system’s performance worse. TSMC’s renewable share rises; its RE100 progress is real; its reports are accurate. And the aggregate decarbonisation of Taiwanese industry may be slower because the scarce resource was allocated to the buyer who could pay most for it — the same allocation principle as the water, applied to electricity. No instrument in Ch. 6’s list for evaluating green management — not the company report, not ISO 14000, not the sustainability index — measures this, because every one of them assesses the firm in isolation.
A.6 Since then
- The drought broke, and the structure did not. Rain returned, restrictions were lifted, and the underlying position — a water system dependent on typhoons, serving an industry that keeps growing — was unchanged. Taiwan has faced renewed water stress since. The 2021 allocation is therefore not a historical episode but a template.
- Reclaimed water expanded. Municipal wastewater reclamation plants serving the science parks were accelerated, adding supply that does not compete with agriculture or households. This is the most genuinely constructive part of the story and your recommendation should engage with it.
- Manufacturing moved abroad — partly. TSMC has built or announced fabs in the United States, Japan and Germany. The drivers are commercial and geopolitical rather than environmental, but there is a resource dimension: capacity built elsewhere does not draw on Taiwan’s water. Note that at least one of those locations has its own severe water politics — which is worth a paragraph in your report.
- The question generalised. Artificial intelligence has driven a further surge in semiconductor and data-centre demand for both water and power, in Taiwan and everywhere else. The allocation problem in this case is now being faced by many governments at once.
Part B — Exhibits
You may reproduce these exhibits, but you must extend them with your own analysis and with verified figures.
Exhibit 1 — Timeline
| Period | Event | Why it matters for the analysis |
|---|---|---|
| 2020 | No typhoon makes landfall on Taiwan — the first such year since 1964. | The trigger is meteorological, not managerial. Nobody caused this; the case is about the response. |
| 2020 | TSMC joins RE100 and signs a very large offshore wind power purchase agreement. | Evidence for the green-management assessment — and the start of the crowding-out question (A.5). |
| Late 2020 | Government begins suspending irrigation across large areas of farmland; compensation offered. | The allocation decision. Note who decides, who is affected, and who is not consulted. |
| Early 2021 | Reservoirs serving science parks and central Taiwan fall to critical levels. | Scarcity becomes binding; the priority ordering is revealed rather than debated. |
| Apr 2021 | Taichung and Miaoli placed on a “five days on, two days off” supply schedule. | Households join agriculture in bearing the shortage. Industry still does not. |
| 2021 | Fabs continue operating; water trucked in; reclamation investment accelerated. | Corporate response — costly, visible, and genuinely mitigating. Classify it using Exhibit 6.2. |
| 2021 | TSMC announces a net-zero commitment. | More evidence for LO 6.2. Ask whether announcement timing is responsiveness or responsibility. |
| 2021 → | Drought breaks; reclaimed-water capacity expands; water stress recurs in later years. | Establishes that 2021 was a template, not an exception. |
| 2022 → | Overseas fabs announced and built; AI demand drives further growth in water and power needs. | The problem scales and internationalises (Ch. 4). |
Exhibit 2 — Who uses the water, and who stopped
The central table of the case. Fill in verified figures yourself; the shares below are approximate and must be checked against the Water Resources Agency.
| User | Approx. share of national water use | Economic value per unit of water | What happened in 2021 |
|---|---|---|---|
| Agriculture | ~70% | Lowest by a wide margin. | Cut first and cut hardest. Tens of thousands of hectares fallowed across successive phases; compensation paid. |
| Households & municipal | ~20% | Not measured this way — and that is significant. | Rationed in affected regions; two days without supply per week in parts of central Taiwan. |
| Industry (incl. semiconductors) | ~10% | Highest by a very wide margin. | Substantially protected. Marginal reductions requested; supply supplemented by purchased and trucked water. |
Two observations to make before you argue anything. First, the sector that uses the least was protected and the sector that uses the most was cut — which is efficient, and is also why the case exists. Second, the column headed “economic value per unit” cannot be filled in for households at all, which should tell you something about the limits of the principle being applied.
Exhibit 3 — Three principles for allocating a shortage
Your report must say which principle it is arguing for. “It should be fairer” is not a principle.
| Principle | The rule | Who loses first, and why | Strongest objection |
|---|---|---|---|
| Highest economic value Efficiency |
Water goes where it produces the most output; losers are compensated from the gains. | The least economically productive user — which in every country means agriculture, and means the poorest users. | Applied as a standing rule it is not a tiebreaker but a permanent ranking of citizens by their earning power. And the compensation is frequently promised more precisely than it is delivered. |
| Proportional sharing Equality |
Every user cuts by the same percentage. | Everyone equally — but a 20% cut means a fallow season for one user and a destroyed production line for another. | Treats unequal situations identically, which is a different injustice. It may also destroy far more total value than it protects. |
| Basic needs first Sufficiency |
Drinking, sanitation and food production are protected; everything else competes for the remainder. | Industry, including the fabs. | In Taiwan’s case this could mean substantial damage to the tax base that funds public services — and to a strategic position that arguably protects the country. “Basic needs” also turns out to be hard to define. |
Exhibit 4 — Stakeholder inventory (starting point only)
| Stakeholder | What was at stake | Voice in the decision | How 2021 ended for them |
|---|---|---|---|
| Farmers in the affected districts | A season’s income, soil and crop continuity, and the viability of farming as a livelihood. | Consulted as recipients of compensation, not as parties to the allocation. | Compensated in cash for fields not planted. |
| Households in central Taiwan | Reliable domestic water supply. | None specific; represented only through general politics. | Two days a week without supply for a period. |
| TSMC | Continuity of production; the destruction of work in progress if a fab stops; reputation. | Substantial, through the strategic weight of the industry — though the firm did not make the decision. | Operations maintained; costs incurred for trucked water and accelerated reclamation. |
| Other science park firms | The same, with far less individual leverage. | Through industry bodies. | Protected alongside the larger firms. |
| Smaller Taiwanese manufacturers | Access to affordable renewable electricity to meet their own customers’ demands. | Effectively none. | Competing for a scarce resource against a far larger buyer (A.5). |
| The Taiwanese government | Economic stability, food security, public order, strategic standing — all at once. | It was the decision. | Managed the crisis; the underlying structure unaddressed. |
| TSMC’s global customers | Supply continuity — and their own published climate and water commitments, which run through this supply chain. | Enormous commercial influence; no formal role. | Supply maintained. |
| Future Taiwanese water users | Whether the 2021 ordering becomes the permanent rule. | None; not present. | Inherited a precedent. |
| Communities near overseas fabs | Their own water and power, in their own jurisdictions. | Their own politics, not Taiwan’s. | Now part of the same question. |
Exhibit 5 — Green management assessed, and what the instruments miss
Ch. 6 offers three ways to evaluate green management actions. Apply all three, then complete the fourth row yourself.
| Instrument | What it shows here | What it cannot see |
|---|---|---|
| Company-issued environmental reports | Detailed, assured, and favourable: high recycling rates, falling intensity per wafer, ambitious targets. | Absolute withdrawal and absolute consumption as the business grows; and the fact that the firm chooses what to report. |
| ISO 14001 and similar certification | Confirms a functioning environmental management system. | Whether the outcomes are adequate. A certified system can manage a growing footprint very well. |
| Sustainability rankings and indices | Strong placement relative to industry peers. | Relative performance says nothing about absolute sufficiency — and the peer group is other semiconductor firms, not other users of Taiwan’s water. |
| System-level effects Not in Ch. 6’s list |
Your analysis goes here. What happened to other users of the same scarce resources — farmers, households, smaller firms buying renewable power? Which of the three instruments above would have detected it? If none, what does that imply about how corporate environmental performance is currently assessed? | |
Exhibit 6 — Key figures
0
Typhoons making landfall on Taiwan in 2020 — the first such year since 1964
~70,000 ha
Farmland with irrigation suspended across successive phases (verify)
~10% / ~70%
Share of national water used by industry vs. agriculture (verify)
>85%
Reported process-water recycling rate — note this is a ratio, not a volume
Data caution. Every figure in this case moves — national water shares vary by rainfall year, corporate consumption grows with capacity, and hectare figures differ depending on which phases are counted. Take each one from a primary source and state the year. The figure most often misused is the recycling rate: it is a ratio and tells you nothing about total withdrawal.
Part C — The Assignment
C.1 How this case satisfies the syllabus requirements
| Req. | Syllabus wording | How you meet it in this case |
|---|---|---|
| (1) | Select a real organization or industry case and analyze it using the frameworks covered in this course. | TSMC is a real organization with unusually extensive public environmental reporting. Apply Ch. 7–18 frameworks in Questions 6–9 — at minimum strategy (Ch. 9) and control (Ch. 18). |
| (2) | Include an explicit business ethics and social responsibility analysis: identify the ethical issues, map the stakeholders, assess conduct against ethical criteria and CSR expectations (Ch. 6). | Questions 2, 3, 4 and 5 are mandatory. This is the only case in the bank that exercises LO 6.2 green management, which Question 4 requires in full. |
| (3) | Close with a recommended course of action and the reasoning that supports it. | Question 10 — three parts: what TSMC should do, what the allocation rule should be, and who should decide. |
| (4) | Written report and oral presentation in English. | Part G provides terminology and presentation language support, including the Chinese–English terms this case needs. |
C.2 First decision: which organization are you analyzing?
This case has an unusually sharp unit-of-analysis problem, because the firm at the centre of the story did not make the decision the story is about. Declare your choice in the first paragraph and hold it.
(a) TSMC
The firm. Best for LO 6.2 green management and for the question of duties arising from benefit rather than from action. The default choice.
(b) The government as the allocator
The body that actually decided. Best for Exhibit 3, distributive justice, and stakeholder representation. Analytically the cleanest, and rarely chosen.
(c) The science park cluster
Treat the industrial zone as one resource-consuming system. Useful for Ch. 18b operations and shared-infrastructure questions.
(d) TSMC’s global customers
Firms with public water and climate commitments that run through this supply chain. Unusual, demanding, and the most original option.
C.3 Five traps to avoid
- Writing a prosecution. The evidence does not support “TSMC is an environmental offender.” Its published performance is strong. A report built on that premise is factually wrong before it starts.
- Writing a defence. The opposite failure, and in this classroom the more likely one. TSMC is a national champion and there is a natural reluctance to examine it critically. If your report reaches the conclusion that there is no ethical question here, you have not analysed the case — you have declined to. Both of these failures are marked the same way.
- Confusing ratios with volumes. Recycling rate, water intensity per wafer and renewable percentage are all ratios. Total withdrawal, total consumption and total emissions are volumes. They can move in opposite directions simultaneously, and conflating them is a content error.
- Attributing the allocation decision to TSMC. The government made it. Your analysis must establish what, if anything, follows for a firm that benefited from a decision it did not make — which is a real question, not a way of excusing anyone.
- Treating the farmers as a rhetorical device. They are real people with a real livelihood, they were compensated, and many accepted the arrangement. Do not romanticise them and do not dismiss them. Find out what compensation was actually offered and whether it covered what was lost.
Part D — Analysis Questions
Questions marked REQUIRED must be answered by every team. From those marked CHOOSE, answer at least three, including at least one from the Ch. 9 / Ch. 18 pair.
Context and unit of analysis REQUIRED
Define your unit of analysis (C.2) and describe the external environment using Ch. 3. This case has an unusual feature you should address directly: the economic and legal/political components are not fully independent of the organization, because a firm of this scale and strategic importance shapes the policy environment that governs it — without necessarily lobbying for anything. Explain the mechanism by which that happens. Then characterise the organizational culture, and assess how a culture built on operational precision and long-term capital planning responds to a resource constraint it cannot engineer its way out of.
Frameworks: Ch. 3 external environment components; environmental uncertainty; dimensions of organizational culture; resource dependence.
Identify and rank the ethical issues REQUIRED
Identify at least four distinct ethical issues, each stated as a decision faced by a named actor. Candidates include: allocating a shortage by economic value; compensating farmers in cash rather than consulting them on the allocation; continuing capacity expansion in a structurally water-stressed location; contracting for a large share of a small national renewable supply; reporting improving ratios while absolute consumption rises; and siting new capacity in another jurisdiction with its own water constraints.
Rank them using issue intensity (Exhibit 6.7). This case produces an instructive pattern: the harm to farmers scores high on proximity and concentration of effect — identifiable people, in named districts, losing a whole season — but low on consensus of wrong, because most observers, including many of the farmers, accepted the priority as reasonable. Explain what it means for a manager when a harm is concentrated and visible and nonetheless attracts no moral objection. Compare briefly with Case 04, where the harm was also concentrated and visible but consensus was contested, and with Case 02, where intensity was low and reaction was enormous.
Frameworks: Exhibit 6.7 issue intensity; ethical dilemmas; distributive justice.
Map the stakeholders REQUIRED
Extend Exhibit 4, recording stake, power, legitimacy, representation and outcome. Then answer three harder questions:
- Does compensation discharge the obligation? The farmers were paid. Establish what the compensation actually covered and what it did not — income, yes; but soil condition, crop cycles, tenancy arrangements, the decision of a younger generation whether to stay in farming? Then take a position on whether payment settles the matter, and be specific about what else would have been owed.
- Does benefiting from a decision create a duty? TSMC did not allocate the water. It did benefit, substantially, from how the water was allocated. Argue whether that creates any obligation toward those who bore the cost — and note that your answer generalises directly to supply-chain cases, where a firm benefits from labour conditions it did not set.
- Where do the smaller firms sit? The renewable-energy crowding-out problem in A.5 makes other Taiwanese manufacturers into stakeholders of TSMC’s environmental improvement. Locate them, assess their power and legitimacy, and say what is owed to a party disadvantaged by another party’s virtue.
Frameworks: Stakeholder identification and prioritization; power–legitimacy–urgency; Ch. 6 CSR expectations beyond shareholders; distributive justice.
Green management and CSR assessment REQUIRED
This is the longest required question in the case and it carries the LO 6.2 content. Four parts, all required.
(a) Shades of green. Apply Exhibit 6.3 — the legal (light green), market, stakeholder, and activist (dark green) approaches. You will find that TSMC sits in different shades on different dimensions simultaneously: arguably activist on renewable procurement and reclaimed water, closer to market or stakeholder on water efficiency, and constrained to legal compliance on matters set by national policy. Place it on each dimension with evidence, and then answer the methodological question: if a firm occupies three shades at once, what is the framework actually for?
(b) Evaluate the green management actions. Use all three of the methods Ch. 6 names — company-issued environmental reports, ISO 14000 certification, and sustainability rankings — and complete Exhibit 5, including the fourth row. State clearly what each instrument establishes and what it cannot detect. Your conclusion should address whether the current apparatus for assessing corporate environmental performance is capable of seeing the effects described in A.5, and if not, what would have to be added.
(c) Classify the CSR posture. Using Exhibit 6.2, classify the conduct as social obligation, social responsiveness, or social responsibility. Distinguish carefully between actions taken before the drought (RE100, reclamation investment, efficiency programmes) and actions taken during it (trucked water, marginal reductions). The timing is the evidence. Note that a genuine finding of social responsibility is available here — unlike in most of the other cases in this bank — if you can support it.
(d) Classical vs. socioeconomic view. This case has a feature no other case in the bank has: the two views largely agree. Maximising shareholder value at TSMC and serving the Taiwanese national interest point in the same direction, because the firm’s output is the tax base, the export earnings, and a significant part of the country’s strategic position. Explain why that convergence makes the ethical analysis harder rather than easier, and identify who is left outside a framework in which corporate interest and national interest coincide.
Frameworks: Exhibit 6.3 shades of green; evaluating green management actions; Exhibit 6.2; Exhibit 6.1; classical and socioeconomic views; UN Global Compact Principles 7–9.
Explain the behavior REQUIRED
Use Exhibit 6.5 to explain conduct rather than judge it. Unlike the other cases in this bank, there is no misconduct to explain — so the question becomes what determines the limits of ethical action by a well-intentioned organization.
- Structural variables. A firm is rewarded for output, yield and delivery commitments. Explain what that does to the priority attached to a constraint that arrives once every few years and is legally someone else’s to manage.
- Issue intensity from inside the firm. Fallowed fields in another county do not appear in any operational metric. Connect this to why organizations respond to what they measure, and to Ch. 18.
- Where does the duty sit? Ch. 6 says managers’ behavior is the strongest influence on ethical conduct in an organization. Here the decisive decision was made outside the organization. Identify what a firm’s ethical obligation looks like when the relevant decision is not its own to make — does it extend to advocating for a different allocation, and would that be responsible or self-serving?
- The precautionary approach. UN Global Compact Principle 7 asks business to support a precautionary approach to environmental challenges. Assess capacity expansion decisions in a structurally water-stressed location against that principle.
Frameworks: Exhibit 6.5 determinants; structural variables; issue intensity; UN Global Compact; the precautionary principle.
Strategy and resource dependence CHOOSE
Using Ch. 9, analyse water and electricity as strategic resources rather than as operating costs. Build a SWOT in which the concentration of advanced capacity on one island is simultaneously the source of the competitive advantage and the principal threat to it. Then evaluate the responses available: efficiency and recycling, reclaimed water, geographic diversification, and long-term supply contracting. Which of these reduce the dependence and which merely relocate it?
Then a harder strategic question. TSMC’s position is strong enough that its resource needs become a national priority — a real competitive advantage that no rival can replicate. Assess whether an advantage that depends on a government prioritising your inputs over its citizens’ is sustainable, using the criteria for sustainable competitive advantage, and what would erode it.
Frameworks: Ch. 9 SWOT, competitive advantage and its sustainability, resource-based view; Ch. 3 resource dependence.
Control: measuring the right thing CHOOSE
Apply the three types of control (Ch. 18) to environmental performance. Feedforward: what should be decided before a fab is sited and built — water availability under drought scenarios, committed reclamation capacity, a hard limit on incremental withdrawal? Concurrent: what should be monitored continuously, and against what standard? Feedback: what did the 2021 drought actually correct, and did the correction address the cause or the symptom?
Then the central control question, which is about the standard rather than the process. An improving recycling rate is a comfortable measure because it can rise indefinitely while withdrawal also rises. Design a control standard for water that cannot be satisfied by a growing business without a genuine reduction — then state honestly what it would cost, and whether a publicly listed company could adopt it unilaterally. Connect to Ch. 6’s independent social audits: who should set and verify such a standard, and why would a firm accept it?
Frameworks: Ch. 18 control process, feedforward/concurrent/feedback control, control standards and criteria; Ch. 6 independent social audits; Ch. 18b operations.
The international dimension CHOOSE
Using Ch. 4 and Ch. 6’s treatment of ethics in an international context, analyse the move to overseas fabs. Capacity built abroad relieves pressure on Taiwan’s water and grid — and creates the same questions in another jurisdiction, at least one of which has severe water politics of its own. Ask whether a firm should apply one global environmental standard or meet each host country’s local standard, and work through what each choice implies when the local standard is weaker or stronger than the home standard.
Then consider the customers. TSMC’s major customers publish their own water and climate commitments, which are met in part through this supply chain. Assess whether a firm’s environmental obligations should be understood as flowing up the supply chain from its customers — and whether that is accountability or the outsourcing of responsibility.
Frameworks: Ch. 4 managing in a global environment; Ch. 6 ethics in an international context and the UN Global Compact; supply-chain responsibility.
Planning under recurring scarcity CHOOSE
Using Ch. 8, treat the 2021 drought as a planning problem rather than an emergency. The event was not unforeseeable: Taiwan’s dependence on typhoons is structural and well documented. Analyse what scenario planning and contingency planning should have produced, and distinguish clearly between the firm’s plans and the state’s.
Then use Ch. 2 to examine the decision to keep expanding capacity in a water-constrained location. Classify it, identify the conditions of certainty, risk or uncertainty under which it is made, and consider which biases are plausibly operating — including availability (a drought recedes from memory quickly) and optimism about technology (the assumption that efficiency gains will keep pace with growth). Then state what decision rule you would apply to the next expansion.
Frameworks: Ch. 8 scenario and contingency planning, goal setting; Ch. 2 decision conditions and biases; Ch. 7 innovation as a response to constraint.
Your recommendation REQUIRED
(a) What the firm should do. Recommend what TSMC should do about its water and energy position, going beyond what it already does — which means you must first establish accurately what it already does, or your recommendation will propose things that exist. Address at least: whether to accept a binding cap on incremental withdrawal from public supply; what proportion of new demand must be met from reclaimed or non-competing sources before a new fab is approved; whether to commit to funding reclamation capacity beyond its own needs; and how to buy renewable power without exhausting what smaller firms need. State the cost of each and who bears it — shareholders, customers through price, or the firm’s growth rate.
(b) What the allocation rule should be. Choose among the principles in Exhibit 3, or construct a fourth. Your rule must state: what is protected absolutely and what competes; what compensation is owed and in what form; who is consulted before a cut, not merely informed after; and what triggers each stage. Then apply your rule to 2021 and say honestly what would have happened differently — including the possibility that your rule produces a worse outcome overall. A rule that costs nothing and disadvantages nobody has not been thought through.
(c) Who should decide, and transferability. Say who should make allocation decisions of this kind and by what process — and note the genuine difficulty that a democratic process may well choose the fabs, because most citizens benefit from the tax revenue and the strategic security, while the cost falls on a rural minority. Close by generalising in one paragraph: data centres, hydrogen production and AI infrastructure are creating this same allocation problem in many countries at once. What principle from your analysis transfers?
Frameworks: Ch. 2 decision-making process; Ch. 6 green management, codes of ethics, independent social audits; Ch. 8 contingency planning; Ch. 18 control standards.
Optional extensions
- The AI demand surge. Extend the analysis to the current growth in AI-driven demand for chips, power and cooling water. Does the allocation question change in kind, or only in scale?
- Comparison with the supply-chain cases. “Does benefiting from a decision you did not make create a duty?” is the same structural question as responsibility for supplier labour conditions. Write the comparison.
- Operations (Ch. 18b). Analyse water reclamation as a process-design and quality-management problem: what does it take to make treated municipal wastewater fit for semiconductor use, and what does that cost per tonne?
- Human resources and community (Ch. 12). Science parks reshape the labour markets and land use of the regions that host them. Assess the obligations a large employer has to the community whose resources it draws on.
Part E — Deliverables
Written report
- Length: 3,000–4,000 words of body text (roughly 10–14 pages), excluding cover page, exhibits, and references.
- Language: English throughout.
- Format: A4, 12 pt, 1.5 line spacing, numbered pages and numbered section headings.
- Citations: Every factual claim and every number carries a source. Consistent style (APA 7th recommended). A reference list is mandatory.
- Contribution statement: a short table naming which member led which section, signed by all members.
Required structure
- Executive summary (max. 250 words, written last)
- Case background and unit of analysis (Q1)
- Ethics and social responsibility analysis (Q2–Q5) — the largest section, and it must include the LO 6.2 green management assessment
- Management analysis (your three chosen questions from Q6–Q9)
- Recommendation and reasoning (Q10)
- Limitations and what would change our answer
- References · Appendices · Contribution statement
Oral presentation
- Time: 15 minutes presentation + 5 minutes Q&A (confirm in class).
- Participation: every team member speaks for a meaningful segment.
- Slides: maximum 15. Any slide that is only a paragraph of text will cost you marks.
- Language: English throughout, including Q&A. Use the English terms in G.1 rather than translating Chinese terms on the spot.
Suggested timing
- 2 min — The allocation question in one sentence, and your recommendation up front
- 2 min — The drought and the allocation (Exhibit 2 is your one essential slide)
- 6 min — Ethics, stakeholders, and the green management assessment
- 3 min — Strategy or control analysis
- 2 min — Recommendation, costs, strongest counter-argument
Prepare for: TSMC’s environmental record is excellent — what exactly is your criticism? If the fabs had stopped, who would have paid for that? Would you tell a farmer your rule to their face?
Sourcing and academic integrity
- Prefer primary sources: TSMC’s own sustainability and ESG reports (detailed and publicly available), the Water Resources Agency and Ministry of Economic Affairs for allocation and reservoir data, the Council of Agriculture for compensation arrangements, and Taipower for electricity statistics.
- Chinese-language sources are legitimate and often better for the domestic detail — compensation schemes, district-level irrigation suspensions, local reporting. Cite them properly and give an English translation of the title. Do not avoid them because the report is in English.
- Every figure needs a year. Water shares, consumption volumes, electricity percentages and recycling rates all change annually. An undated figure is not verifiable.
- Distinguish a company’s own claims from independent verification. Sustainability reports are assured to a standard, not audited like financial statements. Say which is which.
- If you use generative AI tools, disclose what you used them for in an appendix. You remain fully responsible for every claim. This case is high-risk for invented precision: a tool will readily produce an exact hectare figure or water percentage that no source supports.
Part F — Grading Rubric
Total 100 points, mapped to the four syllabus requirements. The final group report is worth 30% of the course grade.
| Pts | Criterion | Excellent | Weak |
|---|---|---|---|
| 15 | Case understanding & framing Req. (1) · Q1 |
Unit of analysis declared and held; the allocation correctly attributed to the government; ratios and volumes kept distinct; every figure dated and sourced. | Attributes the allocation to TSMC; treats recycling rate as evidence of reduced withdrawal; undated figures; drifts between firm and state. |
| 30 | Ethics, CSR & green management Req. (2) · Q2, Q4, Q5 |
Four or more issues identified and ranked; shades of green applied dimension by dimension; all three evaluation instruments used and their blind spots identified; the classical/socioeconomic convergence engaged directly. | Either a prosecution or a defence; green management mentioned but Exhibit 6.3 not applied; company reports accepted uncritically or dismissed wholesale. |
| 15 | Stakeholder mapping Req. (2) · Q3 |
Goes beyond the exhibit; the compensation question researched rather than assumed; smaller firms located as stakeholders of TSMC’s own improvement; the benefit-without-decision question confronted. | Exhibit 4 reproduced; farmers treated as a rhetorical device; no distinction between having a stake and having a voice. |
| 15 | Management frameworks Req. (1) · Q6–Q9 |
At least three frameworks from Ch. 7–18 applied to generate insight; the measurement problem in Q7 confronted with a workable standard. | Frameworks decorate the report; SWOT lists generic items; conclusions unchanged if the frameworks were deleted. |
| 15 | Recommendation & reasoning Req. (3) · Q10 |
Goes beyond what the firm already does; an explicit allocation rule stated and applied back to 2021; costs named and allocated; acknowledges that a democratic process might choose differently. | Recommends things that already exist; “use more reclaimed water” with no volume, cost or trigger; an allocation rule that disadvantages nobody. |
| 10 | English communication Req. (4) |
Clear, well-organized English; environmental and water terminology used correctly; Chinese-language sources cited properly with translated titles; presentation delivered, not read. | Meaning obscured by language errors; withdrawal/consumption/recycling used interchangeably; slides read aloud; Q&A avoided. |
Note on fluency: grammatical errors that do not obstruct meaning are not penalized. Misusing a management or technical concept is penalized — in this case, confusing withdrawal, consumption and recycling rate is a content error, because the distinction carries the entire green-management argument.
Part G — EMI Toolkit
G.1 Key terms
Several of these have common Chinese equivalents you may know; the English term is what you must use in the report and presentation.
| Term | Meaning in this case |
|---|---|
| Water withdrawal | The total volume taken from a source. The number that competes with other users. |
| Water consumption | The portion withdrawn that is not returned to the source. Distinct from withdrawal. |
| Recycling / reuse rate | The proportion of process water used more than once. A ratio, not a volume — it can rise while withdrawal also rises. |
| Reclaimed water | Treated municipal wastewater made fit for industrial use. Adds supply without competing with agriculture or households — the most constructive response in this case. |
| Ultrapure water | Water purified to an extreme degree for wafer rinsing. Producing it consumes raw water. |
| Water stress | The ratio of demand to available renewable supply in a region. Taiwan is water-stressed despite high rainfall. |
| Fallowing | Leaving farmland unplanted for a season. What the irrigation suspension required. |
| Allocation | The decision about who gets a scarce resource. In this case made by the state, not the firm. |
| Distributive justice | Fairness in how benefits and burdens are divided across a society. The underlying ethical frame of the case. |
| Externality | A cost borne by someone outside the transaction. Note that in this case the cost was allocated by policy, not merely spilled over — which is a different structure and should be described precisely. |
| Crowding out | One buyer’s purchase of a scarce good leaving less available, or at higher price, for others. The renewable-electricity problem in A.5. |
| RE100 | A commitment by a company to source 100% renewable electricity. |
| Power purchase agreement (PPA) | A long-term contract to buy electricity from a specific generator, commonly used to finance new renewable capacity. |
| ISO 14001 | The international standard for environmental management systems. Certifies the system, not the outcome. |
| Precautionary approach | Acting to avoid environmental harm where there is risk, without waiting for full certainty. UN Global Compact Principle 7. |
| Silicon shield | The argument that Taiwan’s semiconductor dominance contributes to its security. Contested, widely invoked, and relevant to why the fabs were protected — attribute it as an argument, not a fact. |
G.2 Useful language for the presentation
Criticising without accusing
- “TSMC’s environmental performance is strong. Our question is about the system it operates in.”
- “The firm did not make this allocation. Our argument concerns what follows from benefiting from it.”
- “The recycling rate is rising. Total withdrawal is also rising. Both are true.”
Being precise about measures
- “That is a ratio; the volume moved in the other direction.”
- “This figure is from the 2021 report; the current figure is higher.”
- “ISO 14001 certifies the management system, not the outcome.”
Conceding, then answering
- “We accept that stopping the fabs would have imposed enormous costs on Taiwan. Our recommendation does not require that.”
- “The farmers were compensated. Our question is whether compensation was the whole of what was owed.”
- “A democratic process might well choose the same allocation. We think the process still matters, and here is why.”
Avoid these
- “TSMC stole the farmers’ water.” — factually wrong about who decided
- “TSMC is green, so there is no issue.” — declining to analyse is not a finding
- “They should save more water.” — not a recommendation; state a volume, a source, a cost and a trigger
Part H — Sources and Further Reading
Primary sources (start here)
- TSMC’s sustainability / ESG reports, available from the company’s website. Unusually detailed, with multi-year water and energy data. Read the actual numbers rather than the summary pages — and look for absolute volumes, not just ratios.
- Water Resources Agency, Ministry of Economic Affairs — reservoir levels, sectoral water use statistics, and the legal framework for drought response.
- Council of Agriculture / Ministry of Agriculture — irrigation suspension areas and the compensation schemes offered to affected farmers.
- Taipower — electricity generation mix and industrial consumption statistics.
- RE100 and CDP disclosures — the company’s renewable commitments and reported progress, in a standardised comparative format.
Course materials
- Robbins, S. P. & Coulter, M., Management, 15th ed., Global Edition, Pearson, 2021 — Ch. 6 with particular attention to LO 6.2 and Exhibit 6.3, plus Exhibits 6.1, 6.2, 6.5, 6.7, 6.8; and Ch. 2, 3, 4, 8, 9, 18, 18b.
Secondary sources
There is a good academic literature on water governance, industrial water allocation and the water–energy nexus. Search your library databases for “water allocation” AND (industry OR agriculture), “water-energy nexus” AND semiconductor, and “corporate water stewardship”. Taiwanese academic and policy work on the 2021 drought is substantial and much of it is in Chinese — use it.
A note on the facts in this document. The figures here are approximate and several are explicitly flagged for verification: national water shares, hectares fallowed, corporate water and electricity consumption, and the details of renewable procurement. All of them move year to year. Take every number from a primary source, state its year, and report disagreement where it exists. Do not cite this case document itself as the source of a fact in your report.