Semiconductor challenge: Building supply chains with trusted partners key for self-sufficiency, advocates top expert

The COVID-19 pandemic's chip shortage disrupted not only the automobile industry but also the electronics industry, among others. It acted as a wake-up call for countries worldwide to reduce their reliance on just a couple of nations controlling the semiconductor supply chain. As a result, various financial incentives and schemes were launched by countries to bring the chip ecosystem in-house. Chris Miller, the assistant professor of international history at the Fletcher School of Law and Diplomacy at Tufts University and author of the book Chip War: The Fight for the World's Most Critical Technology, told Business Today that instead of focusing on self-sufficiency, countries should focus on not being excessively reliant on trade partners they can't trust.

"Manufacturing semiconductors is an inevitably international business. Supply chains stretch between over a half dozen countries. No country is self-sufficient in semiconductor production. Rather than focusing on self-sufficiency or domestic manufacturing per se, countries are better off focusing on ensuring they are not excessively reliant on trade partners they can't trust. Building supply chains with trusted partners is a better strategy than self-sufficiency," he said.

As Miller pointed out, chip manufacturing is a complex process, and components for a chip could travel over 25,000 miles before completion. Additionally, each segment of the semiconductor value chain has, on average, 25 countries involved in the direct supply chain and 23 countries involved in supporting market functions.

While the US, European Union, India, and Indonesia are aiming to bring semiconductor manufacturing and supply chains in-house, India's financial incentive of Rs 76,000 crore (less than $10 billion) feel smaller compared to the US and European Union's incentives of $52 billion and over Euro 40 billion, respectively. It can cost anywhere from $2-3 billion for legacy chips to upwards of $20-30 billion for leading-edge chips to build a fab (where semiconductors are manufactured).

Despite this, Miller is of the opinion that India's incentive program is substantial. "The $52 billion Chips Act passed by the US and the roughly $40 billion euros planned by the European Union will be larger. However, India is starting the process of building its chip manufacturing sector from a lower base, $10 billion will provide a substantial boost to the country's chipmaking capabilities," he pointed out.

India has not decided on the applications received even after 14 months of announcing the scheme, while the US and EU have already received big investments from Intel and other leading fabs. Miller, however, did not have a good vantage point to judge why India is taking so long. 

"It is critical that India support chipmaking facilities that are most likely to be commercially viable. China is going to be heavily subsidising its chipmaking facilities over the coming years, putting more government funds into its chip industry than the rest of the world combined. India must consider how to build viable businesses in the context of a very competitive industry, especially at the types of technology that Indian firms are," he cautioned.

Miller also highlighted that chipmaking is a very capital-intensive business, and Indian firms must develop business models that don't rely on ongoing government support. Recently, India and the US have signed a Memorandum of Understanding to support semiconductor plans for both nations. The details of the MoU are still awaited, and more announcements are likely to happen in the coming months.