The Global Semiconductor Race: Shaping Future Supply Chains

Semiconductors have become a vital component of the global economy, driving progress in sectors such as defense, household electronics, and smartphones. The chips inside these products are revolutionizing the way we live, and the pace of technological advancement is so rapid that the industry struggles to meet growing demand. The ongoing ‘chip war’ underscores the strategic importance nations now place on semiconductor dominance.

 

As Chris Miller notes in Chip War: The Fight for the World’s Most Critical Technology: “Chips from Taiwan provide 37 per cent of the world’s new computing power each year. Two Korean companies produce 44 per cent of the world’s memory chips. The Dutch company ASML builds 100 per cent of the world’s extreme ultraviolet lithography machines, without which cutting-edge chips are simply impossible to make. OPEC’s 40 per cent share of world oil production looks unimpressive by comparison.”

 

Let’s take the example of a smartphone chip and trace its journey from raw material to the final product. First, the design and cutting-edge technology come from engineers in the US and are sent to foundries (or fabs) in Taiwan. In these fabs, the chips are fabricated, and afterward, they are shipped to assembly lines in China. Here, they are put together using machines from countries such as the Netherlands, Japan, South Korea, and the US to produce end-products, such as smartphones, for clients like Apple. In China alone, about 450,000 people are employed in assembly lines tied to semiconductor production.

 

Given the widespread geographic involvement in this value chain, external disruptions, such as the pandemic, have exposed vulnerabilities. McKinsey projects the semiconductor industry to reach a value of $1 trillion by 2030, but to achieve this, the industry must tackle critical challenges, including talent shortages and supply chain gaps.

 

India’s Semiconductor Push

 

The semiconductor wave has already touched many economies, and now the Indian government, through the Ministry of Electronics and Information Technology (MeitY), is pushing manufacturing industries with Production Linked Incentives (PLI). With growing headlines about acquisitions, mergers, and joint ventures involving companies from the US, Japan, Taiwan, and China partnering with Indian firms, the market is shifting. For instance, PSMC partnered with Tata Electronics for FAB, Foxconn is in talks to set up the biggest FATP in Karnataka, and Dixon’s deal with Google signals a promising industry shift. Not only India but also other Southeast Asian countries, such as Vietnam and the Philippines, are inviting companies to manufacture.

 

Following the ‘China plus one’ policy, companies are more open to conducting business with India and creating a complete end-to-end hub, including designing within the country. By doing so, companies can overcome supply chain issues. Regarding the talent shortage, cultivating engineering talent requires more time and investment than developing technicians, prompting companies to upskill technicians and broaden their roles. Additionally, the demand for construction workers has surged, but workforce development efforts are lagging.

 

Bridging Talent Gaps in the AI-Automation Age

 

With artificial intelligence and machine learning, many shopfloor operations can be automated, as seen in Micron’s fabrication plant in Taiwan. However, subject matter expertise needs to be nurtured and inculcated. To address this, nations are building institutions to develop the required talent, while expats are flown in globally to transfer knowledge. The talent shortage is expected to persist for the next five years until the industry creates a niche category for itself explicitly.

 

The reliance on human expertise in critical areas of design, engineering, and fabrication remains indispensable. While AI and automation can streamline routine processes, the rapid advancements in semiconductor technology require not just operational efficiency but also innovation, design expertise, and a deep understanding of fabrication complexities. Therefore, companies are collaborating with public and private entities to cultivate the necessary talent and expand workforce development efforts. A revolution is underway, with significant developments already visible in southern states. Cities are evolving, policies are changing, and workforce dynamics are shifting rapidly. The definition of blue-collar jobs is set for a transformation. Much remains to be done to meet these demands by both companies and the Government of India.