The semiconductor industry is a cornerstone of the global economy, leading advancement in technology, communications and manufacturing. With semiconductors powering everything from smartphones to electric vehicles, its strategic importance is imperative. The Asian continent has emerged as the dominant player in the semiconductor industry, dominating all key stages of the supply chain. This Asian dominance is based on innovation and government support, leading to serious strategic implications for Europe.
The semiconductor industry outlook in Asia
The Asian continent completely dominates semiconductor production, with Taiwan, South Korea, China and Japan leading several segments of the value chain.
The tiny island of Taiwan is the undisputed leader in semiconductor production. This dominance is largely due to the work of a single company, Taiwan Semiconductor Manufacturing Co. (TSMC), which accounts for more than 50% of the global semiconductor industry. Unlike other major companies such as Samsung or Intel, which produce most semiconductors for their own needs, TSMC supplies a wide variety of companies, including Apple, AMD, Nvidia, and Qualcomm. This business model is known as the foundry model and has made Taiwan an indispensable player in the global semiconductor ecosystem.
The second largest producer is South Korea, with a market share of 17%. The South Korean multinational Samsung Electronics is one of the largest technology companies in the world in terms of revenue and one of the main producers of semiconductors worldwide. Samsung simultaneously functions as an integrated device manufacturer, producing semiconductors for the manufacture of its own products, and to a lesser extent as a supplier of semiconductors to other companies. The semiconductor production of Samsung and other companies, such as SK Hynix in the more than seventy plants in the country is one of the main South Korean exports, accounting for 15% of the country's exports in 2021.
China, being the world's largest manufacturing hub, is another country rapidly expanding its semiconductor production capabilities, with a current market share of 9%. As the largest buyer of semiconductors, largely due to its massive manufacturing sector, the Chinese government is determined to achieve self-sufficiency in the production of such a strategically valuable material. Chinese authorities have announced ambitious plans for the expansion of domestic production capacities to achieve the goal of zero semiconductor imports. By 2030, China expects to produce about 25% of the world's semiconductor output. Chinese authorities consider it vital to increase their self-sufficiency in a context of tensions with the United States and its allies in the region.
While Japan held a 50,3% share of the global semiconductor industry in 1988, this share has steadily declined since the 1990s, reaching 10% in 2019. Despite losing the lead the country enjoyed in the 50s, Japan remains key in the semiconductor production value chain. Japan is still responsible for producing more than 30% of the materials needed for semiconductor manufacturing and XNUMX% of the production of the necessary machinery. The Japanese government has already announced plans to increase the country’s semiconductor manufacturing capabilities and strengthen its leadership in the production of the raw materials and equipment required.
The complete dominance of the Asian continent in semiconductor production is clearly reflected in the statistics. In 2022, Asia was responsible for 70% of global manufacturing, holding a key role in the value and supply chain. The ecosystem of these four countries is closely linked, allowing a fluid exchange of raw materials and components, ensuring efficiency and competitiveness. Despite the growing geopolitical tensions between these four players, industrial activities remain interconnected.
Reasons for Asian dominance
Asia’s dominance of the semiconductor industry is the result of a combination of strategies and favourable conditions. A key reason has been the proactive intervention of governments in the region. The aforementioned Asian countries have implemented policies aimed at ensuring the competitiveness of local semiconductor industries. Authorities have provided tax incentives, subsidies and funds for research and innovation in coordination with the private sector. For example, South Korea’s strategy focused on memory chips has enabled the country to become a global leader, while Taiwan has focused on creating a highly specialised manufacturing ecosystem to position itself as a key player in the global chip production chain.
Another critical factor is the region's technological leadership. Companies such as TSMC and Samsung have consistently invested in cutting-edge technology to stay ahead of global competition. These companies have pioneered chip manufacturing processes, including the development of 3nm and 2nm technologies, which are essential to power the next generation of devices. These companies' commitment to innovation and research has established Asia as the preferred destination for the most sophisticated semiconductor industry. In addition, these companies' great ability to efficiently scale production has been key to meeting the growing demand for semiconductors.
Logistical efficiency has increased the competitiveness of Asian producers in the sector. The geographical proximity of suppliers, manufacturers and assemblers has created a highly integrated ecosystem. Interconnectivity reduces production time, costs and allows for a quick reaction time to market irregularities. The adaptability of Asian producers was very clear during the pandemic compared to their Western counterparts.
Economic and geopolitical conditions have played a significant role in reinforcing Asian dominance. Competitive labour, modern infrastructure and especially good trade connections have made the region highly attractive for semiconductor production.
Implications for the European Union
Europe's dependence on Asian semiconductor imports has significant implications for the EU's economy and strategic autonomy. Whereas in 1990 the European continent was responsible for 44% of global semiconductor production, the situation has now been completely reversed, with Europe's market share now barely reaching 8%. This dependence exposes Europe's vulnerabilities to the global supply chain, particularly in periods of uncertainty. The automotive and electronics industries, which are dependent on semiconductors, have already suffered production stoppages due to microchip shortages. These problems highlight the need for Europe to re-evaluate the imperative importance of a stable semiconductor supply.
The economic impacts resulting from Europe's overdependence on Asian manufacturing are substantial. European industry faces the risk of prolonged disruption, which could further weaken the serious problems of economic growth and competitiveness that the continent is already experiencing. This situation has caused European authorities to design strategies to reduce this dependence and increase production capacities in the region.
The European Chips Act aims to respond to these challenges. Seeking to increase Europe's share of global production to 20% by 2030, the initiative seeks to attract private investment, establish state-of-the-art manufacturing facilities and foster research and innovation. These measures could improve Europe's position as a more competitive player in the global semiconductor manufacturing market.
Collaboration between European and Asian research centres in this field presents a good opportunity to access more advanced technologies and expertise. By forging strategic alliances with countries such as Japan or South Korea, the European Union can diversify its sources of supply while sharing knowledge and innovation. These potential alliances can play a crucial role in strengthening the European semiconductor ecosystem.
Department of Economics and Business Casa Asia
