2024

LOCALIZING THE GLOBALS E M I C O N D U C T O R VA LU E C H A I N
Strategizing for growth
while building resilience inthe rapidly evolving industry

CONTENTE XECUTIVE SUMMARY
1.

3

E M P O W E R I N G I C T: T H E C R U C I A L R O L E
OF SEMICONDUCTORS

2.

4D E C O D I N G T O D AY ’ S S E M I C O N D U C T O R
VA L U E C H A I N

3.

6

TURBULENCE IN SEMICONDUCTOR
INDUS TRY: RECENT E VENT S

4.

10ECONOMIC COUNTERMEASURESF O R S E M I C O N D U C T O R S U P P LY
CHAIN SHOCKS

5.

14

SCALING UP THE SEMICONDUCTORT E C H N O L O G Y I N D U S T R Y VA L U E C H A I NCONCLUSION

1820SHINICHI AK AYAMADANIEL CHOW

Partner, Telecommunications, Information
Technology, Media & Electronics (TIME) Practice,Japan

Principal, Innovation Practice, Southeast Asia
SUBRAT GUPTAManager, TIME Practice, Southeast Asia

We would like to acknowledge all those who contributed in the review of this Report, especially:
Dr. Klaus Schmitz, Yuma Ito, Abhishek Srivastava, and Javier Soong.

2

ARTHUR D. LITTLEEXECUTIVE SUMMARY
Semiconductors are the bedrock of modern information andcommunications technologies (ICT). Within a highly globalized
yet specialized semiconductor value chain, seismic shifts

are underway amid supply chain challenges stemming fromgeopolitical issues and demand-supply imbalances. Global

interdependencies characterize the supply chain, highlighting
vulnerabilities to environmental, geopolitical, economic, andtechnological risks. Consequently, governments must proactively
anticipate and adeptly navigate global intricacies as theyarchitect robust and efficient local semiconductor industries
intertwined with the global value chain and yet sufficiently

localized to ensure both local economic benefit and resilienceagainst potential future chip shortages.

Recent global events, including natural disasters, geopolitical conflicts,
and trade disputes, have stressed the semiconductor industry, leading
to supply shortages and economic impacts. Environmental risks likedroughts and pandemics disrupt supply chains, while economic risks
such as demand surges strain production capacities. Technologicalrisks, including cyberattacks, compromise operational efficiency anddata security. Trade disputes, particularly between the US and China,
further disrupt supply chains and market stability.
To address these challenges, governments are implementing
various countermeasures to bolster semiconductor supply chains.
Localization efforts aim to enhance industry resilience and reducereliance on foreign suppliers. Initiatives like the US Creating Helpful
Incentives to Produce Semiconductors (CHIPS) Act and the European
Chips Act incentivize domestic semiconductor manufacturing andinnovation. Countries in regions around the globe are investing heavily
in semiconductor development to secure supply chains and drive
economic growth.
Scaling up the semiconductor industry requires fosteringengineering talent, promoting end-application industries, andnavigating geopolitical complexities. Governments must review
fiscal measures, attract skilled talent, and support industries that
rely on semiconductor technology. Collaboration between countries
and strategic investments in emerging and frontier semiconductor
technologies are essential for sustaining industry growth.

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R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I N

1 . E M P O W E R I N G I C T: T H E C R U C I A L
ROLE OF SEMICONDUCTORSThe semiconductor industry is of strategic
importance to a country’s economic
development, technology development,
and security. Besides being critical building
blocks for security and defense applications,semiconductors are also essential enablers
for several industrial applications, numerous

SEMICONDUCTOR CHIPSA R E P I V O TA L F O R H I G H T E C H M A N U FA C T U R I N G
AND ARE CRUCIAL FOR
ENABLING AI

physical applications or products, and softwareenabled technologies like the Internet of Things(IoT) and AI. These applications span industries,
products, and functions.

semiconductors to assist with data

Industrycollection and processing for actionable-body for appropriate treatment.

Automotive. Semiconductors are essential
in automotive technology and powerelectronics, driving crucial systems likeengine management, safety features, andinfotainment, enhancing both performanceand safety in modern vehicles.

- Aviation. Semiconductors power essential

aviation functions, including flight controls,
navigation, and communications, ensuringsafety and efficiency in modern aircraft.

- Energy. Semiconductors are the basis forrenewable energies, such as solar power andwind turbine energy systems. They are used
for essential processes like power conversion
as well as transmission of power to the grid.

Products- Sensors. Semiconductors are used to create
sensors that can detect light, heat, motion,and other physical phenomena.

- Modern medical devices. Medical devices
combine life sciences and semiconductors

for wellness and healthcare. These can include
wearable sensors for health monitoring,
medical robotics, advanced imaging
technologies for high-resolution ultrasound,neural interface technologies, and implantabledevices for trauma intervention.

4

These technologies may rely on advanced

feedback or to help navigate within the

Functions- Computing. The semiconductor industry
produces microprocessors and memory

chips, which are the primary components incomputers, servers, and data centers. These
devices are used in various industries, fromfinance and healthcare to manufacturing
and logistics.

- Communications. Semiconductors are used
to produce cell phones, satellite systems,

and other communications devices. They arealso used to create routers, switches, andother networking equipment that enablecommunications between devices.

- IoT. Semiconductor chips are used in IoT

devices to run both business and personalerrands. As reliance on IoT devices grows,
there will be a further increase in demand
for sensors, memory, connectivity, and so on.

- AI. Semiconductor chips are pivotal forhigh-tech manufacturing and are crucial
for enabling AI. Semiconductor design
improvements for AI focus on increasing
the data speed of memory with more
power efficiency.

ARTHUR D. LITTLESEMICONDUCTORS ARE
ESSENTIAL ENABLERS
FOR SE VER AL INDUSTRIAL
A P P L I C AT I O N S ,NUMEROUS PHYSICALA P P L I C AT I O N S O R
PRODUCTS, ANDS O F T WA R E - E N A B L E D
TECHNOLOGIESThe global top 30 technology equipment
companies include semiconductor companies,
such as NVIDIA, Taiwan Semiconductor
Manufacturing Company (TSMC), Samsung,
Broadcom, and ASML, among others. These
top 30 firms collectively represent ~85% of thetotal market capitalization (as of April 2024)of the top 100 technology equipment firms. All
play a role in the global supply and demand of
semiconductors and semiconductor equipment.
The global semiconductors market value was
US $527 billion in 2023, with demand driven by
end consumers spanning various industries,
as shown in Figure 1.

Figure 1. Global semiconductor market and breakdown by
application
Figure 1. Global semiconductor market and breakdown by application2%
14%2023 total global
semiconductor market

PC/computer
26%

Communications
Automotive

14%

Consumer$527 billion
14%

Industrial
30%

Government, including military end use

Note: Use case split based on 2022 market value
Source: Arthur D. Little, Semiconductor Industry Association (SIA), World Semiconductor Trade Statistics (WSTS)

Note: Use case split based on 2022 market value.
Source: Arthur D. Little, Semiconductor Industry Association (SIA), World Semiconductor Trade Statistics (WSTS)

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R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I N

2 . D E C O D I N G T O D AY ’ S
S E M I C O N D U C T O R VA L U E C H A I N

CLOSE TO 70% OF THE
W O R L D ’ S A D VA N C E D
SEMICONDUCTOR
M A N U FA C T U R I N G
C A PA C I T Y I S C U R R E N T LY
L O C AT E D I N TA I W A N

The semiconductor value chain is complex andtruly global, with an interconnected network ofgeographically diverse companies that design,
manufacture, and distribute semiconductors. The
industry is characterized by high specialization
spread across geographic areas, high barriers toentry due to significant R&D investment costs,
large CAPEX, and volatile demand.
In the value chain (see Figure 2), there are a few
regions that hold the majority of global market
share. For example, more than 70% of the global

Despite this concentration, strong global

semiconductor foundry capacity for matureinterdependencies characterize the supply

process technologies (28 nanometers [nm]chain, with the US, Europe, and Japan upstream

and older) is concentrated in China and Taiwan(equipment and tools); Taiwan and South(see Figure 3), a region significantly exposed to

Korea, where most advanced semiconductors

high geopolitical tensions. In addition, closeare produced, in the middle; and China, whichto 70% of the world’s advanced semiconductor

incorporates chips into final goods, downstream

manufacturing capacity (including 16/14 nm(back-end assembly and test).

and more advanced technologies) is also
currently located in Taiwan.

Figure 2. Semiconductor value chain overview (main actors)
Figure 2. Semiconductor value chain overview (main actors)
MANUFACTURING
DESIGN
Fabless chip companies:1
Advanced processors(CPU, GPU, FPGA) & DSP
RFFE & cellular
basebands

R&D

Data converter,
switchers, multiplexers

EDA & core IPIntellectual property(IP)Electronic design
automation (EDA)

Front-end wafer fabrication

Back-end assembly & test

Logic: leading
nodes (<10 nm)

Logic: leading
nodes (>10 nm)

Outsourced assembly& Test (OSAT)

MemoryEquipment & tools

Materials (non-exhaustive)

Etch, deposition, diffusion,
process control, planarization

Photoresist,photomask

Wafer handling, packaging,assembly, testing

Silicon wafers,
packaging substrates

Extreme ultraviolet
lithography (EUV)

Specialty gases(in aggregate)

Note: Main actors’ share estimated as percentage of revenues, based on headquarter location; 1) considers fabless companies that develop chips for use by other players
Source: Arthur D. Little, SIA

Note: Main actors’ share estimated as percentage of revenues, based on headquarter location; 1) considers fabless companies that develop chips for use byother players
Source: Arthur D. Little, SIA

62

ARTHUR D. LITTLE

Semiconductor materials vary in price andOther countries that are key providers ofavailability, from abundant silicon to difficult-raw materials for the semiconductor industry

to-source rare-earth elements like gallium,

include Germany, the US, Russia, Japan,

germanium, and scandium. China dominates

Malaysia, and France. Ukraine is also a key

the raw materials production, such as for

supplier of noble gases, such as neon, argon,

silicon, gallium, germanium, and scandium

krypton, and xenon, which are essential for(see Figure 4).

use in semiconductor chip production processes.
Without raw materials, chips cannot move off
the drawing board into production.

Figure 3. Distribution of foundry capacity by region, 2023
Figure 3. Distribution of foundry capacity by region, 2023

MATURED PROCESSES (28 nm & older)

5%

11%

ADVANCED PROCESSES (16/14 nm & newer)

12%

China

31%

China

12%

Japan

44%

8%

South Korea

South Korea

TaiwanTaiwan

US

US

6%

3%

68%

OthersFigure 4. Global critical raw material supply chain (largest players)
Note: “Advanced processes” are defined as non-planar transistor architecture processes, including </= 16/14 nm nodes; “matured processes”
are defined as including >/= 28 nm nodes
Source: Arthur D. Little, TrendForce

Note: “Advanced
processes”
are defined
non-planar transistor
architecture
including</= 16/14 nm nodes; “matured processes” are defined as
Figure4. Global
criticalrawasmaterial
supplychainprocesses,(largest
players)
including >/= 28 nm nodes
Source: Arthur D. Little, TrendForce

3
RussiaPalladiumFranceHafniumUS

Beryllium
Helium

67%
44%

76%

TurkeyDRC
Cobalt63%

Antimony
Boron

63%
99%

Brazil
Niobium

92%

South Africa
Iridium
Platinum
Rhodium
Ruthenium

93%
71%
81%
94%

40%

China
BariteBismuthGallium
Germanium
Magnesium
Natural graphite
Scandium
Tungsten
VanadiumLight rare-earth
elements
Heavy rare-earth
elements

45%
65%
71%
45%
97%
40%
67%
32%
62%
85%
95%

DRC = Democratic Republic of the Congo
Source: Arthur D. Little, European Commission

DRC = Democratic Republic of the Congo
Source: Arthur D. Little, European Commission

4
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R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I N

THE SEMICONDUCTOR
VA L U E C H A I N I SCOMPLEX, WITH
A NET WORK OFG E O G R A P H I C A L LY
D I V E R S E C O M PA N I E S
T H AT D E S I G N ,M A N U FA C T U R E ,AND DISTRIBUTE
SEMICONDUCTORSIn the global semiconductor supply chain,
Figure 5 illustrates a typical journey of asmartphone application processor.
A complex and interconnected global networkof partners remains essential for producing asingle semiconductor chip. The supply chain
for semiconductor production remains deeplyinterdependent on a global scale. International
collaboration remains critical for the foreseeable
future, in spite of deepening risk factors thatthreaten the stability of this supply chain.

Figure 5. Smartphone processor journey from conception to creation

Figure 5. Smartphone processor journey from conception to creation
DesignEquipment

Commercialization

2 3
5
4 12 6

Manufacturing
Materials

1
5

5
11

8
9
10

7

01

European firm licenses IP on
application processor architecture
Key player: ARM Holdings

07

Silicon melted and recrystallized to form
large single crystal (“ingot”) by polysilicon
manufacturer in China or Japan

02

US EDA firms provide critical tools
to process acquired IP designs into
finished chip architecture

08

Ingot sliced into several wafers in Germany
or South Korea, then polished & shipped tofabrication plant03

US fabless firms utilize own IP, acquired
IP & EDA tools to produce finished chips
Key players: Qualcomm, Nvidia

09

Foundries in South Korea or Taiwan
imprint chip designs contracted byOEMs onto wafers, on mass scale04

Chip procured by US smartphone
OEM & integrated into design phaseof their devices

10

Individual chips are separated &packaged by OSAT provider in
Malaysia or Thailand

05

Manufacturing equipment to convert
integrated design into physical chips
is made in Europe, Japan & US
Key player: ASML

11

Chip shipped to smartphone OEM’s
assembly partner in China or Vietnam,
then incorporated into circuit board
inside phone

06

Silicon dioxide required for making
chips mined in China or US, thenrefined into metallurgical-grade silicon

12

Smartphone assembled into finishedproduct & shipped for sale worldwide

Source: Arthur D. Little, SIA

Source: Arthur D. Little, SIA

85

ARTHUR D. LITTLE

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R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I N

3. TURBULENCE IN SEMICONDUCTOR
INDUSTRY: RECENT E VENTS

The global structure of the semiconductor
supply chain, which is highly specialized, hasserved the industry well through the boom
cycles of innovation of end-user ICT and its
consecutive adoption. However, over the last
few years, several factors have induced stress on
this well-functioning structure and have put thismodel at risk. Broadly speaking, there are fourmain risks the semiconductor industry faces:(1) environmental risks like natural disasters

E N V I R O N M E N TA L R I S K S
C A N C A U S E S H O R TA G E S ,HIGHER PRODUCTION
EXPENSES, AND
POTENTIAL ECONOMICCONSEQUENCES FOR
INDUSTRIES

or extreme weather can disrupt semiconductor
supply chains; (2) economic risks that result
in demand spikes or supply gluts can impact
sales and production; (3) technological risks,
including cyber threats, can compromise
manufacturing and data security in thesemiconductor sector; and (4) geopoliticalrisks, including trade disputes and restrictions,
may hinder the global flow of materials. Below,
we break it down further:
1. Environmental risks. Natural disasters,
pandemics, and extreme weather eventsaffect the supply of semiconductors due
to disruptions in their operations. Recent
examples include:- Winter storms. In 2021, a winter stormin Austin, Texas, USA, led major players

such as Samsung to shut down operationsat least temporarily. These shutdowns
affected older semiconductor facilities,
possibly reducing smartphone output for
Samsung.

- Droughts. The 2021 Taiwan droughtraised manufacturing expenses for

TSMC, a significant water-consuming
semiconductor company. TSMC, using
over 150,000 tons of water daily, faced
challenges due to minimal rainfall. The
company is said to have spent around$25 million on water trucks alone in thatyear, considerably exceeding its original
budget planning. Water shortages continue
to challenge Taiwan’s chip industry.

- Pandemics. The supply chain disruption in
the semiconductor industry caused by theeffects of COVID-19 is well-documented.
Future pandemics and their potential
disruption of the global semiconductor
supply chain should not be ruled out.
Environmental risks can cause shortages,
higher production expenses, and potential
economic consequences for industries reliant
on semiconductor technology. In response,
the sector must employ resilience andcontingency strategies to counter such risks.

10

ARTHUR D. LITTLE

2. Economic risks. Demand spikes, supply gluts,

3. Technological risks. Risks such as cyberattacks

and other economic disruptors affect supply

and ransomware attacks, impact the integrity ofchains, induce market imbalances, and strain

semiconductor products, operational efficiency,

production capacities. Examples include:

and consumer confidence. Recent examples- Surge in semiconductor demand. In 2023,
the global semiconductor supply-demand

gap was projected to stand at 9%.1 Closing

include:- Cyberattacks. In 2023, Applied Materials,

a leading global supplier of semiconductor

this gap presents a significant challenge,

manufacturing equipment, services, andparticularly for the European automotive

software, experienced a decline in sales

sector, which is forecast to experience

due to a cybersecurity attack on one of its

the highest growth (11% CAGR) among all

suppliers, MKS Instruments. The attack

semiconductor segments until 2026. In

resulted in a loss of $250 million in sales.

contrast, consumer electronics is expected

The consequences of this attack extend

to grow by 4%, while smartphone growth isto disrupted order processing, productanticipated at just 2%.

shipments, and customer service. Such

- Effects of demand shocks. Europe

has been profoundly affected by thesemiconductor shortage, with vehicle
production falling by 2.3 million units in
2021, constituting 24% of global losses,

supply chain attacks exploit vulnerabilities
within a company by targeting less secure
elements like vendors.

- Ransomware attacks. The semiconductor
industry faced eight ransomware attacks

making it one of the most impacted regions

from extortion groups in 2022. Prominent

alongside North America, which accounted

companies, such as NVIDIA, AMD, andfor 25% of losses.2

Samsung, along with others, including

Overall, abrupt demand surges andfluctuations can catch businesses
unprepared, possibly leading to supply
shortages and difficulties in meeting
consumer demands. Conversely, supply
gluts are also possible, as seen in somesemiconductor categories (e.g., withmemory chips in the second half of 2023).
Consequently, businesses face challenges
in swiftly scaling up production, affecting
their capacity to benefit from growth andfulfill orders, or reducing production andinventories in times of economic slowdown.

Ignitarium, Diodes, SilTerra Malaysia Sdn.
Bhd., Semikron, and Etron Technology weretargeted. Ransomware groups perceive
semiconductor firms as high-value targets
and utilize media attention to coerce
victims into ransom negotiations dueto the sector’s critical role in the global
economy. These groups employ malware to
encrypt data, issue extortion threats, andeven publish proprietary information likesource code. Some threaten to sell stolencompany data and plans to competitors or
rival nations.

The economic risk resides in the potential

Given the interconnected nature of thefor these disruptions to trigger market

industry and its pervasive applications, robust

instability and create broader economic

cybersecurity measures are imperative toimbalances.

mitigate risks and sustain the stability andexpansion of the semiconductor sector.

1
2

Grishina, Diana, et al. “What Does the Semiconductor Shortage Mean for Europe?” Automotive World Magazine, 6 January 2023.
Ibid.

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R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I N

4. Geopolitical risks. As semiconductors are

to its security, and they involved a

including defense systems, communications,

government-controlled licensing system,

and consumer electronics, their availability

posing challenges for Western companies

and access can become contentious issues

that rely on these materials. Consequently,

with geopolitical implications. Therefore,

the global supply chain is witnessing priceas economies compete to take the lead inhikes due to this geopolitical maneuvering.

the semiconductor industry, geopolitical

Additionally, China withheld regulatory

risks must be considered. Risks stem fromapproval for a $5.4 billion acquisition

trade tensions and restrictions imposedof an Israeli chip manufacturer by Intel,

by nations, potentially disrupting supply

a response occurring amid escalating

chains, restricting access to key markets,

tensions between the US and China. The

and affecting the global movement ofterminated deal reflects the broader

materials and products. Geopolitical risks

context of the US imposing export controls

include:and restrictions to dampen China’s access- Trade disputes. Trade between the US
and China significantly influences theglobal semiconductor industry and its

to advanced chip capabilities.

- Competition over advanced

semiconductors. Other economies

supply chain. The US-China trade dispute’s

are ensnared as well as a result of therepercussions extend to various economies

trade dispute and geopolitical tensions.

and companies within the sector. The

An example lies in the geographicalstringent export controls imposed by thesemiconductor concentration in Taiwan,

US, aimed at impeding China’s chipmaking

which plays a pivotal role by contributing

progress, create formidable challenges fornearly 90% of the world’s advanced chip

the Chinese semiconductor industry. These

production. Therefore, major economies

regulations restrict the export of chipmaking

like China have long sought to gain greater

equipment and curtail the utilization ofcontrol over Taiwan’s semiconductor

US-made tools for Chinese industries andindustry, seeing it as a strategic asset that

customers. As a result, companies like

could help it to become a leader in the

Semiconductor Manufacturing International

global tech industry. Taiwan’s concentration

Corporation (SMIC) and Yangtze Memoryof production amplifies supply-related

Technologies encounter limitations onvulnerabilities, primarily linked to theequipment procurement and support fromgeopolitical tensions arising from thistheir previous US and European suppliers,

situation.

leading to a noticeable downturn in China’s
semiconductor industry.

- Respective security concerns of China

In summary, geopolitical risks exert profoundeffects on the semiconductor industry on a
global scale. The stringent US export controls,

and the US. In 2023, Japan and thefor instance, hinder China’s progress in

Netherlands, following discussions with

developing its local semiconductor industry.

the US, agreed to restrict the export ofSimultaneously, Taiwan’s concentration ofadvanced chip manufacturing equipment

semiconductor production creates various

to China. This move supports the US’s

supply risks, primarily originating from factors

strategy to limit China’s access to advanced

related to geopolitics.

technologies, especially in semiconductors.
In response, China implemented export
restrictions on key materials (gallium andgermanium) crucial for various technicalapplications, including semiconductors.

12

China justified these actions as safeguards

crucial components in various technologies,

ARTHUR D. LITTLE

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R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I N

4. ECONOMIC COUNTERMEASURESF O R S E M I C O N D U C T O R S U P P LY
CHAIN SHOCKS
Localization of the semiconductor industry

Some governments recognize the need to

can help governments address some of thebuild up their engineering talent base andenvironmental and geopolitical risks highlighted

are investing in education and workforce

thus far. As illustrated in Figure 6, countries aredevelopment to ensure sustainable

actively working to bolster the resilience of thegrowth and innovation in their respective

semiconductor industry’s supply chain and ensure

semiconductor industries.

they have a role to play. Several governments arecommitting massive investments and gearing
public policy toward localizing semiconductor
design and manufacturing in-country. Several
governments, especially those with existing
semiconductor industries, are taking a nuanced
approach in forming R&D and supply chain
alliances with other countries to gain competitive
advantage, while still taking significant fiscal
measures and shaping public policies toward
developing capabilities and know-how in highervalue emerging and frontier semiconductor
technologies.

Examples of these approaches are evident
across various major economies globally,
as described below.
The US passed the CHIPS Act in 2022
to incentivize domestic semiconductor
manufacturing, drive sectorial innovation,and develop the workforce. It authorized over
$52 billion in government incentives to increase
the US domestic supply of computer chips andthe construction of semiconductor fabrication
facilities and equipment within the US.

Figure 6. Fiscal measures committed vs. competitiveness in global
chip industry
Figure 6. Fiscal measures committed vs. competitiveness in global chip industry

Singapore
Expanding fiscal measures
to retain chip industry,including attracting
overseas talent

Thailand, Malaysia,
Vietnam
Expanding fiscal
measures to retain
or grow chip industry

TaiwanInvesting in R&D to
maintain lead positionin high-end chip
manufacturing

Japan & Korea
Committing $10 billion+ eachto reinforce local chip industry,including high-end chips
China & US
Committing $50 billion+
each to localize chip industry

Indonesia, Philippines
Fostering international
collaboration & developing
local chip industry roadmaps
India
Committing $10 billion+
to bolster local chipindustry
EU
Committing $40 billion+
to localize chip industry

Source: Arthur D. Little

Source: Arthur D. Little

14

6

ARTHUR D. LITTLE

COUNTRIES AREA C T I V E LY W O R K I N G
TO BOLSTER THE
RESILIENCE OF THE
SEMICONDUCTORI N D U S T R Y ’ S S U P P LY
CHAIN AND ENSURE
T H E Y H AV E A R O L E
T O P L AY

For its part, China has implemented suchmeasures as export controls and executed
strategic initiatives to bolster the growth andautonomy of the local semiconductor sector,
reducing reliance on foreign suppliers. The Big
Fund, established in 2014 as China’s primary
investment tool for the domestic semiconductor
industry, encompasses two phases. The initial
phase raised $19.63 billion, largely enhancing
China’s semiconductor industry’s capacity anddesign capabilities. This phase aimed at expanding
logic and memory foundries, boosting design
firms, and fortifying the packaging sector. Phase
II, valued at $28.9 billion, focuses on fostering
key companies by investing in their upstream

The CHIPS for America fund will provide up
to $39 billion in government loans and otherfinancial assistance, including a 25% tax credit
to semiconductor manufacturers within the
US. In addition, it will provide $13 billion for
semiconductor research and workforce training.
Furthermore, the US is fostering collaborative
efforts, exemplified by the Chip 4 Alliance,
involving Japan, Taiwan, and South Korea.
This initiative aims to stabilize supply chainsand promote future cooperation while also
strategically positioning itself amid the evolving
dynamics of US-China trade, where China isand downstream suppliers, often coinciding
with industrial park establishment. Moreover,
Big Fund II promotes applications in sectors
like automotive, big data, and communications.
China’s commitment to nurturing the domestic
semiconductor industry underscores its drivefor self-sufficiency and reduced dependence
on foreign entities as showcased by the recent
progress of SMIC in delivering 7 nm microchips
despite sanctions on leveraging older deep
ultraviolet (DUV) lithography equipment.
India has strategically committed $10 billion

rapidly advancing its chipmaking technology.

over the next decade to bolster electronics

Similarly in Europe, the European Chips

on chip design and manufacturing. Currently,

Act seeks to help the region secure its
semiconductor supplies, ensure self-sufficiency,
control more of its supply chain, reducereliance on foreign companies, and competewith the US and Asia on tech. The EU Chips Act
is a $47 billion package of public and private
investments with an ambition of building
large-scale capacity and innovation to ensurethat Europe is self-sufficient — anticipating
potential future supply crises. The goal of theact is to double the EU’s global market share insemiconductors from 9% to 20% by 2030. The EU
Chips Act further acts as a figurehead for theempowerment of the European semiconductor

design and manufacturing, particularly focusingnearly 80% of the funds remain to be allocated.
Initiatives like the Modified Special Incentive
Package Scheme (M-SIPS), Production Linked
Incentive (PLI) Scheme, and the Design Linked
Incentive (DLI) Scheme have been introduced tofoster semiconductor ecosystem development.
Responding to India’s efforts, Micron Technology,
Foxconn Taiwan, and HCLTech are planningsignificant investments in semiconductor
manufacturing facilities, reflecting India’s
commitment to strengthening its semiconductor
industry on a global scale. Micron Technology
plans to invest $825 million in a new chip facility,
Foxconn Taiwan is seeking approval for the

ecosystem.

establishment of a semiconductor unit, and

The Asia-Pacific region is emerging as a pivotal

government regarding a potential $400 million

hub, as economies in this region have adopted

investment in an outsourced semiconductor

significant semiconductor strategies toassembly and test (OSAT) facility. HCLTech andnavigate the international political landscape

Foxconn have also separately announced a joint

and promote domestic semiconductor

venture for an OSAT facility.

HCLTech is in discussion with the Karnataka state

production and innovation.

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R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I N

Tower Semiconductor plans to seek Indian
government incentives to build a $8 billion
semiconductor manufacturing facility to
manufacture 65 nm and 40 nm chips. RelianceIndustries, Tata Electronics, and Vedanta

T H E A S I A - PA C I F I CREGION IS EMERGINGA S A P I V O TA L H U B

Semiconductors are also said to be interested
in entering the semiconductor manufacturingindustry in India.

South Korea is strategically investing to

Taiwan remains committed to high-end

industry development through various large-

chip manufacturing. Besides foundry market

scale funds and direct investments. In June

leadership in both mature process technologies

2023, a $229.25 million fund was announced(28 nm and older) and advanced manufacturing

to support fabless companies. In September

processes (including 16/14 nm and more

2023, additional investments of $301.66 million

advanced technologies), Taiwan is also thefor next year and $1.8 billion over the next fivemarket leader when it comes to extreme

years were announced. The recently approved

ultraviolet lithography generation processes

K-Chips Act raises tax credits to 15% for major(known simply as EUV) — an innovative

companies and 25% for smaller and medium-

technology used in the semiconductor industry

sized firms investing in manufacturing facilities.

for manufacturing integrated circuits (ICs).

Samsung Electronics, in collaboration with

Taiwan continues to invest heavily in R&D for

ASML, will invest $230 billion to establish a

cutting-edge 3 nm and 2 nm chips to securestate-of-the-art semiconductor processing

technological leadership. Its 10-year chiptechnology plant in the greater Seoul area.

program, starting in 2024 with a $375 million
first-year budget, aims to continue supporting
advanced IC process development and attract
global semiconductor collaboration. Taiwan’s
generous tax incentives include a 25% tax
deduction for R&D expenditures and an
additional 5% for advanced machinery spending.
Major industry players like TSMC’s $2.9 billion
chip-packaging plant and Fujifilm’s $110 million
chip-polishing expansion underscore Taiwan’s

Singapore actively diversifies its value chain
focus and attracts investment throughincentives, offering a concessionary 5% or
10% tax rate for five years, tax exemption of
up to 100% for fixed capital expenditure, andtax relief for automation projects. Singapore
also encourages R&D initiatives and talentacquisition through an extended tax deductionof 250% for R&D until 2025 and provides 10 new

dedication to semiconductor excellence.

Employment Passes per company for skilled

Japan prioritizes chip production for economic$4 billion in a semiconductor fabrication plantoverseas talent. GlobalFoundries has invested

security, committing $7.5 billion over fivethat is expected to produce 450,000 300 mm

years to advance materials and equipment.

wafers annually at full capacity by 2025 to 2026.

A 10-year tax incentive program offers a 20%
corporate income tax reduction for businesses
in the semiconductor sector every fiscal year.
Samsung and TSMC are investing significantly,
with Samsung exploring a chip-packaging
test line near its Yokohama R&D center, and
TSMC planning a $7 billion chip plant on
Kyushu Island for 12 nm, 16 nm, 22 nm, and 28
nm chip production. Micron Technology is also
investing up to $3.5 billion in EUV technology
with Japanese government support to pioneer
EUV tech in Japan. Foundry start-up Rapidus —backed by the Japanese government and large
conglomerates — broke ground on a chip fab in
Chitose, Hokkaido, in September 2023 and plans
to start pilot production in 2025 of its advanced
2 nm chip based on gate-all-around transistor
technology.

16

enhance value chain stability and drive global

Vietnam’s growing semiconductor industry
receives support from the US, with $2 million
allocated for workforce development. Hightech labor training is supported by a $17 million
domestic fund. Samsung, Hana Micron, andAmkor Technology are investing, with Samsung
committing over $2.6 billion to develop
electronic components assembly facilities,
Hana Micron planning a $1 billion investment by
2025 in chip packaging and memory products,
and Amkor Technology opening a $1.6 billion
advanced chip-packaging factory.

ARTHUR D. LITTLE

Thailand keenly focuses on drawing companies
that engage in front-end processes, such as
designing semiconductors and etching wafers,
and offers extended corporate tax breaks of
up to 13 years. Earlier this year, the Board of
Investment (BoI) approved 20 new investment
projects worth ~$870 million from Taiwaneseelectronics companies, aiming to establish
Thailand as a new export base for the industry.
Malaysia’s incentives, including partial income
tax exemptions and up to 10 years of full tax
exemptions, make it a favorable destination for
semiconductor investment. Chinese-controlled

COUNTRIES IN
THE MIDDLE EAST
H AV E E X P R E S S E D
G R E AT I N T E R E S T I N
DIVERSIFYING THEIRECONOMIES INTOSEMICONDUCTORTECHNOLO GY
M A N U FA C T U R I N G
AND R&D

Nexperia expanded its Malaysian facilities andestablished a global R&D center, aligning with
its global expansion. Infineon Technologies andIntel also have chosen Malaysia for expansion;both selected Malaysia as the destination
for new semiconductor manufacturing andpackaging facilities. Intel is constructing
its inaugural advanced 3D chip–packaging
factory in Penang, while Infineon is committing~$5 billion over five years to develop the world’s
largest 200-mm silicon carbide semiconductor
plant.
Other Asia-Pacific countries, such as
the Philippines and Indonesia, are also
strategically investing in semiconductor
industries to harness their advantages andintegrate into the global value chain. The
Philippines is fostering collaborative initiatives,

While not covered extensively in this Report,
countries in the Middle Eastern region, such as
Saudi Arabia and the United Arab Emirates,
have expressed great interest in diversifying
their economies into semiconductor technology
manufacturing and R&D. Israel remains animportant link in the global semiconductor
supply chain as a hub for advanced engineering
talent and R&D. Israel’s government has also
agreed to give Intel a $3.2 billion grant for a
new $25 billion chip plant locally.
In the South American region, Mexico and the
US have announced a strategic partnershipto explore semiconductor supply chain
opportunities.

exemplified by the US International Technology
Security and Innovation (ITSI) Fund, announced
last November, aimed at enhancing resilienceand fostering mutual benefits. Furthermore,Indonesia, although trailing its counterparts,
is actively developing a roadmap for its
semiconductor industry, with anticipatedcompletion by the end of 2024 to attract
investment into the country moving forward.

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R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I N

5. SCALING UP THE
SEMICONDUCTOR TECHNOLOGYI N D U S T RY VA L U E C H A I N- Fiscal measures. Governments could

Countries that currently do not hold asignificant position in the global semiconductor

constantly review their foreign directindustry could take several measures to create

investment programs, tax incentives, and otheran enabling regulatory environment to growfiscal measures to ensure that they match

their local semiconductor industries. Countries

or improve on those of competing countries.

with a meaningful position in the semiconductor

Holistically examining the direct and spin-industry could become even more serious global

off benefits of fiscal measures in areas likeplayers in attractive product segments withjob creation, creating end-user application

the right mix of regulatory support, talent, andindustries, building semiconductor technology

partnerships.

intellectual property, defending against future

Having the right infrastructure, capabilities, andknow-how to produce entry-level semiconductor
technologies like basic memory chips andpotential chip shortages, and so on, will enable
the impact of fiscal measures to be viewed in
the wider context of economic development,
technological innovation, and security.

- Neutral geopolitical positioning. Ongoing

logic chips is a good foundation. Thereafter,
additional measures could occur in a phased

fluctuations in geopolitical positioning

approach to gradually build up more advanced

within different country alliances present

capabilities and enabling infrastructure toopportunities for governments that are adept

scale up into higher-value emerging and frontier
technologies of the semiconductor industry overtime, including the following (see Figure 7):

at navigating these intricacies to build up theirlocal semiconductor capabilities as neutral
brokers and sources of semiconductor raw

Figure 7. Scaling up global semiconductor technology
industry valuematerials, equipment, and/or chip supply.
chain
Figure 7. Scaling up global semiconductor technology industry value chain

1

High

Semiconductor IP & skills

Frontier chips(system-onchip, AI, highperformancecomputing, etc.)

Fiscal measures (e.g., FDI incentives, tax breaks)
that match or improve on competing countries

2
Continued neutral geopolitical positioning& investment in enabling infrastructure

Emerging products(power electronics,
optoelectronics,
sensors, etc.)3
Scaling up of local engineering talent& attracting overseas talent

Entry-level chips(basic logic& memory)

4
Continued support for relevant end-applicationindustries — domestic & export

Relevant end-application industries
Low

Short-term

Medium-termLong-term

Time
Source: Arthur D. Little

18

Source: Arthur D. Little

7

ARTHUR D. LITTLE- Engineering talent. Semiconductor

technologies are rapidly advancing in emerging- End-application industries forsemiconductors. Continued support byareas like power electronics, optoelectronics,

governments to promote low/no-tariff tradeand sensors, as well as frontier technologies,

and provide tax breaks and other export-such as system-on-chip, AI, and high-oriented and domestic consumption–related

performance computing, among others. Suchfiscal measures for relevant end-user

technologies require engineering talentapplication industries will ensure a virtuous

not just for R&D but also to keep advanced

cycle of supply/demand to reinforce the

manufacturing facilities in operation.

return on massive investments needed toGovernments that can foster local engineering

create or expand a local semiconductor

talent as well as attract overseas talent skilledindustry. Examples of such end-userin these emerging and frontier technologies

application industries closely intertwined

will reinforce their competitive advantage aswith semiconductor demand include

technology continues to evolve rapidly andelectronics, telecommunications, automotive,

impact the types of end-application industries

and healthcare, among others.

that use semiconductors.

19

R E P O R T: L O C A L I Z I N G T H E G L O B A L S E M I C O N D U C T O R VA L U E C H A I NCONCLUSION

The semiconductor industry plays a pivotal rolein driving economic development, technologicalinnovation, and security. Its applications
span critical sectors, including automotive,
healthcare, communications, and AI. However,
the industry faces numerous challenges, suchas supply chain vulnerabilities, environmental
risks, geopolitical tensions, and technologicalthreats.
Recent events like natural disasters, tradedisputes, and geopolitical conflicts haveunderscored the need for resilience andcontingency strategies within the industry.

GOVERNMENTS
WORLDWIDE
ARE LOOKING
T O W A R D VA R I O U S
COUNTERMEASURESTO BOLSTERS U P P LY C H A I N S A N D
PROMOTE DOMESTICSEMICONDUCTOR
M A N U FA C T U R I N GGovernments worldwide are looking towardvarious countermeasures to bolster supply
chains and promote domestic semiconductor
manufacturing. Scaling up the semiconductor
industry requires a multifaceted approach,including:
1. Tracking, foresight, and analysis. Conduct asystematic analysis of emerging technologies
to anticipate future sources of semiconductor
demand to guide the investments andcommitment required to build industry
capabilities.
2. Stakeholder engagement. Actively engage
with incumbent companies to foster equitable
access into the global ICT/semiconductor value
chain through fiscal measures and creating
enabling supporting infrastructure.

20

3. Pursuing targeted capacity building.
Develop an advanced engineering talentpool and a competitive advantage (e.g., byfocusing on the application of emerging or
frontier semiconductor technologies or on
specific value chain activities like material
and equipment supply).
By fostering a conducive environment for
semiconductor innovation and production,
countries can position themselves as key
players in the global semiconductor value chain,
driving economic growth and technologicaladvancement in the process.

ARTHUR D. LITTLE

NOTES

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ARTHUR D. LITTLE

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