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The Global Semiconductor Supply Chains: Challenges, Risks, And Strategies

India is a large market which is likely to grow manifold in the next five years with a large appetite for semiconductors. Noteworthy policy interventions by the government to attract global players, infrastructure creation and talent are adding to this advantage

The Global Semiconductor Supply Chains: Challenges, Risks, And Strategies

Outlook Start-Up Desk

POSTED ON November 07, 2023 10:57 AM

The semiconductor industry is one of the most vital and dynamic sectors in the global economy, powering a wide range of electronic devices and enabling innovations in various fields. The pandemic, geopolitical tensions, trade disputes, environmental concerns and corresponding technological disruptions are a part of this mosaic. These factors have exposed the vulnerabilities and interdependencies of the global semiconductor supply chain, which is highly complex, specialized and integrated.  

Global semiconductor supply chain consists of several stages, from design and manufacturing to assembly and testing, involving myriad entities, millions of workers, and billions of dollars across different geographies. The free flow of materials, equipment, intellectual property, and products among these regions is essential for the industry to deliver cost savings, performance enhancements and innovation.  

This entire endeavour stands on the intersection of technology, economics and geopolitics. While there may be various schools of thought but an argument that ‘Technology is Politics’ may not be entirely incorrect in the present scenario. 

Global semiconductor supply chain has its intrinsic risks and uncertainties that can disrupt its operations and impact its resilience and competitiveness. These challenges encompassed demand shocks, primarily during the pandemic which necessitated the need for digital devices and services while also disrupting semiconductor production due to pandemic-related constraints.  

This led to a widespread shortage of chips in various sectors. Geopolitical tensions, including the US-China trade war and the two ongoing conflicts in Europe and West Asia have added complexity and uncertainty, raising concerns about global supply chain resilience and fragmentation.  

Environmental issues, such as resource scarcity, resource centricity and environmental standards pose additional threats with the industry needing to reduce its carbon footprint and waste generation. These further augment the concept of ‘Just in Case’ rather than the traditional ‘Just in Time’ with technology as the new determinant of geopolitical decision making. 

The challenges towards accruing effective global supply chains include building logistic capacities and warehousing, foster competitiveness and dynamic policy implementation. National logistics policy in this space is a step in the right direction. Since the overall ambit is complex, it is suggested that this aspect is dealt by making a formal structure with inter-ministerial expertise and representation. This structure will not only attract the well-established players but will assist in positioning India as a ‘Trusted Source’ rather than a ‘Second Source’. Free Trade Agreements (FTA’s) will also be relevant in this context as they formalize a number of structural and transactional issues.  

While all this is under preview of the government, the industry also needs to optimize by expanding capacities, leveraging digital technologies for visibility and flexibility, improving product quality and reliability and strengthening relationships with suppliers besides a renewed focus on innovation, sustainability, and talent acquisition. This cooperative approach is essential for navigating this futuristic landscape. 

Indigenisation, availability, processing and purity aspects of chemicals and materials to lower reliance on global supply chains needs to be factored intrinsically in the Indian context. While relevance of these established supply chains can never be undermined, impetus on self-reliance and subsequently plugging in as a trusted supplier will be a game changer. As the first argument, most manufacturing entities have a presence in India and could leverage capacities of Indian suppliers to create products for a global supply chain.  

Secondly, semiconductor manufacturing is a complex and a long process with a rather low potential of switching suppliers by manufacturing entities owing to technical and process considerations. Both these arguments are aligned for India to enter this space and plug into global supply chains while the manufacturing facilities come up in a defined timeline. This process needs to be augmented by corresponding policies on regulatory administration and setting up of laboratories which would certify these products for assessment in line with global standards as also curtail monopoly of a few in this space. Further simplification of custom duties and tax procedures, within stipulated guidelines will add to ease of doing business. 

The global semiconductor supply chain is a critical enabler of the digital economy and society. It faces unprecedented challenges and uncertainties that require effective and efficient management. India is a large market which is likely to grow manifold in the next five years with a large appetite for semiconductors. Noteworthy policy interventions by the government to attract global players, infrastructure creation and talent are adding to this advantage. India is well located on global supply chain routes and this geographical advantage needs to be harnessed and as Robert D Kaplan puts it “That technology has cancelled geography contains just enough merit to be called a plausible fallacy”. 

- Anurag Awasthi, vice president of IESA ( India Electronic and Semiconductor Association) 

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