Global Race to Manufacture Semiconductors (Chips)

Global Race to Manufacture Semiconductors (Chips)

The possession of advanced technology is a key for any nation to gain a leverage over its rivals. Technology revolutionises the world as every era is marked by a defining invention, including sailboat, guns, steam engines, nuclear energy and today tiny chips, also known as semiconductors. The countries behind these inventions dominated world politics in the past.

Why is there a race?

There’s a global shortage of electronic devices ranging from consumer electronics to car manufacturers. The products span across different industries however these shortages are connected. There’s a common factor in all these products i.e semiconductor chips. There is an unprecedented shortage of chips or semiconductors and industries across the globe are suffering. 

These chips drive our world as we depend more and more on gadgets and move online. The shortage is either driving up costs or forcing companies to cut back on production. The demand is far more than the supply and the production is limited to a few big players. The manufacturers of semiconductors are spending heavily on expanding their output and India has a pitch for them. The proposal is simple – You “make in India” and you get more than US$ 1 billion in cash as an incentive. Reports say that India wants to offer more than US$ 1 billion as incentives to companies who manufacture their chips in India. 

The government is willing to provide assurances to manufacturers that the buyers will line up. Companies in India could be asked to buy made in India chips and suppliers who make chips in the country will be tagged as trusted sources. Moreover, the government will buy the chips and also set up a mandate for private players. These semiconductors (chips) will be eligible for use in a range of products from CCTV cameras to 5G equipment and everything in between. This may be a compelling offer but it’s not unique. Governments around the world are subsidizing chip makers. India has now entered the global race but attracting these businesses will not be easy owing to intense competition.

How does it affect a nation?

The world doesn’t have enough semiconductor chips and that’s affecting the related industries. The end-use sectors range from smartphone manufacturers to home Appliances to car manufacturers. They’re all struggling to meet the market demand. It’s applicable in a wide variety of products and embedded inside computers, smartphones, tablets, smartwatches and even smart cars. They run everything in the 21st century

The problem started with the pandemic as schools, colleges and offices shifted to the online working space. The demand for computing devices like computers, laptops and smartphones rose abruptly. This triggered an unprecedented global shortage and the demand continues to rise. Automakers increasingly depend on semiconductors for everything from improving fuel economy through engine management to driver assistance. But since there is now a global shortage, car makers had to cut production. In smartphones, chips handle everything from detecting when you switch on the device to running the software that allows you to communicate with the apps.

Reports say, Qualcomm, a major smartphone chip supplier is now struggling to keep up with the demand. One of its biggest customers, Samsung, is warning of supply issues already. Apple’s supplier Foxconn also expects a 10% decline in exports. The next products facing similar shortage could be refrigerators and microwave ovens. This was predicted by one of the members of the Whirlpool group. Whirlpool Corp is one of the largest appliance makers in the world. The company said it’s falling behind on its exports to America and Europe as its chip deliveries have dropped by 10%. These semiconductor chips power more than half of whirlpools products from microwaves to refrigerators and washing machines.

Semiconductors are important to our world as they run most of our appliances. The demand for these semiconductor chips will only rise in the future. The car industry alone could spend up to 45% of its cost on semiconductors by 2030. However, only a few suppliers dominating the global market companies are struggling with serious supply shortages. 

Why is it a big deal?

If we take a look at the rise of companies like Microsoft and Apple it coincided with America’s leadership. On the other hand, Beijing has one advantage compared to the democratic world as it doesn’t set millennium goals. Elections happen, governments change and so do priorities but china doesn’t have the inconvenience of free thought and thus its goals are permanent. 

For instance, U.S president Joe Biden wants US$ 50 billion to boost the U.S chip industry. The proposal is part of his US$ 2 trillion infrastructure plan. The American president also wants to create a national semiconductor technology centre for research into semiconductors.

China is also in the semiconductor race with investments of more than US$ 35 billion being flowed into China’s semiconductor firms in 2020. The spike in investment in the industry is due to the trade war between the U.S and China. Until recently, China depended on the U.S for chips and its annual imports were estimated to be worth more than US$ 300 billion. The American suppliers received about 25% of their sales orders from Chinese markets. But since Trump’s administration banned technology exports to Chinese companies, Joe Biden is yet to lift those restrictions so Beijing has now embarked on a mission of self-sufficiency in chips.

China is rapidly increasing its contribution to the semiconductor industry however not at the same pace as the US. Here’s an even more stark indicator: China employs 1089 researchers per million inhabitants whereas the U.S employs about 4205 per million inhabitants. The U.S is spending more money and deploying more manpower on the global race to manufacture chips. 

But there’s a subtle and critical fact that’s inadvisable to ignore. The trajectory is more important than absolute numbers. The share of US chip manufacturing is on the decline while China is in the ascendancy.  

How should India see this as an opportunity?

The key to China’s downfall will be the emerging powers like India. Its researchers can squeeze more out of each dollar than their peer nations. India has managed to combine low cost and top quality products as its R & D capabilities are unparalleled to other nations. The next step is to get foreign investors to make it to India. The government already introduced incentives like the production linked incentive scheme for large-scale electronics manufacturing. India is presenting itself as a stable and open supplier and it is reflected in India’s relaxation of paperwork and ease of doing business. The focus must remain on research and development deploying.

India has the potential to become the global hub for semiconductors. It needs to project itself as a worthy candidate for semiconductor companies and level up its credentials. India is the world’s second-biggest mobile manufacturer and plans to dominate the smartphone industry. Furthermore, it is also seeking to become a global manufacturing hub for several other industries. 

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