Globalisation and the semiconductor supply chain

Given the vital role that semiconductors play in our daily lives and the global economy, it’s no surprise that chip supply chains aren’t immune to geopolitical tensions. Governments worldwide are fretting over how to guarantee access to chips – or, at least, how to better protect themselves.

While many are attempting to move operations onshore, they’re battling a supply chain that is inherently global in its nature. You can’t redistribute naturally occurring resources while developing the skills and economies of the nations involved. This would require inordinate logistical and financial muscle –  not to mention a tsunami of skills and legislative change.

Fortunately, there is another way. It’s more realistic for nations to focus their efforts on specific expertise – whether it’s intellectual property, chip production, or increasing manufacturing capacities.

In developing these specialisms, it becomes possible for governments to secure their position among a cooperative group of political entities.

ASML: a small company making a big impact

The Netherlands provides a prime example of the power of specialisation. ASML is a photolithography manufacturer that drives the nation’s role in the global supply chain.

ASML is the only company in the world capable of making the exact machinery it does, which is crucial to cutting-edge chips. As a result, the company’s market capitalisation has hit $250 billion as of this year. The sale of just 400 machines brought in just shy of £19bn, which is about 5% of the Netherland’s GDP.

Such disproportionate financial success, compared to the size of the Dutch economy, has inevitably attracted international attention – especially from larger countries keen to further their own interests.

Earlier this year, for example, a Chinese staffer stole data on ASML’s proprietary manufacturing equipment. Many see this as retaliation to restrictions placed upon the export of advanced chip capital equipment to China agreed by US and Dutch officials in January.

Oddly enough, this controversy illustrates the inherently global nature of the semiconductor industry. Despite the international friction, China remains the Netherlands’ third-largest market, while ASML’s position remains secure.

Japan, South Korea, and semiconductor diplomacy

Chips can also play a key role in conflict resolution, as seen in warming relations between South Korea and Japan.

In 2019, Japan imposed export controls on key components for screen and semiconductor production, requiring a license for exporting key materials to South Korea. As the move came amidst heated discussions around World War Two reparations, it was interpreted as somewhat hostile. In fact, it led to the South Korean government lodging a formal complaint with the World Trade Organisation.

Tensions persisted until earlier this year, when the Japanese government relaxed the export controls, which prompted South Korea to retract its complaint. Since then, they’ve been reinstated by Japan as a preferred trade partner, and have participated  in the “Chip 4 Alliance” alongside Taiwan and the United States. The result is an aligned, cooperative body, working to ensure a stable supply of semiconductors worldwide.

The need for a globalised chip industry

A globally diverse supply chain helps distribute risks, facilitate technological innovation, and maintain a healthy competitive landscape. It also reduces overreliance on a single country or region, mitigating vulnerabilities and potential disruptions.

When it comes to semiconductors, the industry’s vastness and complexity demands this approach. By promoting collaboration and cooperation, those participating can ensure its continuous growth and stability.

This being the case, it’s crucial to foster a globally diverse and highly specialised supply chain that operates as a collective entity. With nations prioritising economic success over political rivalries, we’ll stand to secure a better legacy for future generations.

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