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Asian Tigers – roaring in the global semiconductor chain

Contribution of Asian tigers to global semiconductor supply

The global semiconductor shortage is causing issues not only for laptop and smartphone makers but is impacting a wide array of production chains across different industries. Asia semiconductor value chain is highly fragmented, but there are some big players who are leading the overall semiconductor development and manufacturing aspects. We previously covered the China semiconductor industry, and now we will look at the high-growth East Asian economies — the Asian Tigers — and their contribution to the global chip supply chain.

The semiconductor value chain involves many specialized fields such as equipment, foundry, electronic design automation software, integrated device manufacturer, fabless makers, Outsourced Semiconductor Assembly & Test (OSAT), but also intellectual property. The four Asian Tigers, Hong Kong, Singapore, South Korea, and Taiwan, are among the most developed economies in Asia fuelled by exports and rapid industrialization. They also play a bigger role in the global semiconductor supply chain.

TSMC leading the way in semiconductors

Semiconductors have been named the “new oil” of the 21st century, and Taiwan is at the centre of the global chip manufacturing industry. The country has a 63% share of the global chips markets, whereas Taiwan Semiconductor Manufacturing Company (TSMC) has a 54% share of the global chip supply.

As per an ING report, Taiwan’s integrated circuits contributed to 36.1% of the country’s total exports in 2021 and are expected to be the main driver of economic growth. Based on the strong output from the Asia semiconductor sector and persistent demand, ING revised its 2022 GDP growth forecast for Taiwan from 3.7% to 4.4%.

TSMC is clearly the market leader, although smaller companies exist, and is ramping up investments in new fabs to meet the rising demand. While South Korea’s Samsung has the technological capacity to challenge TSMC, it lacks the volume of chips TSMC produces. In 2021, TSMC announced plans to spend $100 bn over the next three years to ramp up chip production and is already setting up based in Japan and the US.

“The semiconductor industry growth will continue to be fuelled by the structural megatrends of 5G and high-performance computing,” TSMC Chairman Mark Liu said during an investor call.

Before Taiwan, Japan was the leader in global semiconductor industry, but sales have declined to a global share of 10% in 2019 from 50% in 1988. The country has the most number of chip factories, but they lack the technological advancements to manufacture high-end chips, reports Japan Times.

The country now imports 64% of its semiconductors. Tetsuro Higashi, former president of a leading Japanese semiconductor maker Tokyo Electron, said the country needs $87 bn to revive its chip industry. Japan is now working with TSMC to enhance its technological capabilities, with a $337.2 m worth planned research and development project involving TSMC and 20 Japanese firms.

South Korean semiconductor companies on the rise

Hong Kong is the trading hub for electronics produced in mainland China. Most parts and components makers from Hong Kong shifted manufacturing there to reduce costs, whereas R&D, product design and development, management, logistical support, etc. happens from the autonomous region.

China’s top chipmaker SMIC is listed in Hong Kong. However, US sanctions on SMIC as well as removal of Hong Kong’s special status for trade have impacted the re-exports of electronics from Hong Kong. Market intelligence provider TrendForce said, “This action is thus expected to drastically change the current geographical concentration of semiconductor products and the production strategy of chip manufacturers.”

On the other hand, South Korea’s semiconductor industry took shape owing to US investment in the 1960s, thanks to the cheap labour available for making chips. Local companies then started to make their own investments and over the years some clear leaders have emerged. Samsung Electronics and SK Hynix are among the biggest integrated device manufacturers (IDM) in the world, while DB HiTek is an up and coming South Korean foundry company, as per data from Statista.

As of 2019, South Korea’s share in the global semiconductor market was 18.4%, only second behind the United States. The country is a market leader in the memory semiconductor market, with a 58.4% share. The country had 71.6% of DRAM market and 45.9% of the NAND market, says the country’s national investment agency Invest Korea.

Samsung Electronics and SK Hynix have captured over 50% of the global memory semiconductors market. Semiconductors made up 19.4% of South Korea’s total exports in 2020. Meanwhile, the country’s semiconductor exports hit $10.9 bn in January 2022, a 24% jump compared to previous year. Semiconductors contributed 5.9% to South Korea’s GDP in 2018, writes macroeconomic surveillance organization AMRO, reflecting the role they play in the country’s economic development.

Geopolitical implications of semiconductor supply chains

In May 2021, South Korea announced a plan to spend $450 bn over the next decade to further strengthen its semiconductor capabilities. Institute of Electrical and Electronics Engineering (IEEE) in a report cites consulting firm Kearney partner Bharat Kapoor saying that in the next decade “superpower status is going to be defined by the ability to make semiconductors.”

In a bid to secure this key market, the US last month proposed a semiconductor industry partnership between itself, Taiwan, South Korea and Japan. While US sanctions prevent Chinese companies such as Huawei from accessing Taiwanese chips, the US wants to gain an even bigger advantage.

KPMG in a report sees the geopolitical issues as a key challenge for the global chip industry, as industry leaders express concern over the prominence of Taiwan in the global semiconductor supply chain. If China invades Taiwan, 50% of the world’s chip production would be controlled by China, as per a report by American Mind.