After the US imposed broad restrictions against China’s semiconductor manufacturing industry last autumn, opportunities are now opening up for other nations to strengthen their positions in the supply chain for this crucial sector of the global economy and the foundation of emerging technologies like artificial intelligence (AI) and next-generation computing.
Three countries—China, South Korea, and Taiwan—manufacture most of the world’s semiconductors, accounting for 87% of the market in 2021.
The US and Japan, who once led the market, are still significant players, particularly in the design of chips that are outsourced to fabs in China, South Korea, and Taiwan, highlighting the intricate degrees of interdependence in semiconductor supply chains.
Taiwan’s TSMC produces over 90% of the world’s most advanced chips.
Taiwan’s TSMC produces more than 90% of the most advanced chips in the world, South Korea is the largest exporter in revenue, and China leads in terms of overall production and export volume.
To access new markets, these big-five producers have been using semiconductor diplomacy. The government of South Korea visited the United Arab Emirates in January to establish new semiconductor technology companies and compete with China in a key Middle Eastern market embracing new technologies like AI.
In August’s meeting with Vietnam’s government, an electronic device company announced an $850 million investment to produce semiconductor components there.
A technology company in South Korea started building a $1.6 billion facility in Bac Ninh, a province in northern Vietnam, in 2021 to produce, assemble, and test semiconductor goods.
India is eager to take a more significant part in the semiconductor supply chain; therefore, Japanese businesses are looking at investment opportunities there. India’s first fab will begin construction in February, a partnership between UAE and Israeli semiconductor companies.
In December, a multinational corporation in India revealed its plans to invest $90 billion in the semiconductor sector across all of its businesses over the next five years, including in fabs for advanced chip manufacturing.
New centers of production
Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, emerging markets in Southeast Asia, are hoping to use the CHIPS Act to expand semiconductor businesses and win market share from China in the Asia-Pacific region, which represents around 60% of global sales.
After the announcement of the Indo-Pacific Economic Framework in May 2022, Indonesia and the Philippines have been seeking new investments from the US in their semiconductor industry.
Malaysia is already a significant producer of semiconductors.
With seven plants spread out around the country and a 13% market share in the global assembly and testing of chips, Malaysia is already a significant semiconductor producer. The government is actively pursuing investment from top businesses like Taiwan’s TSMC to establish new fabs there.
Last year, Taiwanese manufacturers of router motherboards depended on China for roughly 50% to 70% of their production capacity, but the CHIPS Act is driving them to consider Thailand and Vietnam.
Meeting domestic demand
As a result of the shift to remote labor brought on by the Covid-19 epidemic and the move toward digitalization, the worldwide market for semiconductor sales reached $595 billion in 2021, a 26.2% rise from 2020.
However, the industry’s growth was constrained by the two-year-long supply chain disruption, highlighted by China’s Zero-Covid slowdown. As a result, an estimated $500 billion in sales were lost in the semiconductor industry and other sectors it supports.
Since most memory chip companies, which held 25% of the market in 2022, have declared reductions in capital investment for the coming year, many anticipate momentum to remain stagnant in 2023.
The semiconductor supply deficit impacted global growth, particularly in emerging markets with electronics, automotive, or defense hardware industries that rely on a consistent supply of chips.
Many emerging markets, for example, are competing for a share of the global electric vehicle manufacturing business, which is heavily reliant on semiconductors.