Semiconductor shortages are wreaking havoc around the world, disrupting supply chains across multiple industries and revealing politically sensitive global dependency on foundries based in Taiwan, chiefly the flagship TSMC.
The country that is not officially recognised by almost any other in the world, is responsible for over 60 per cent of the global chip supply, including those using some of the most uniquely advanced 7, 5 and the upcoming 3 nm nodes (increasing speed and reducing power consumption as well as manufacturing costs).
Covid-19 pandemic has only made the problems worse as it has caused demand across certain industries (like car manufacturing) plummet with others skyrocketing (chiefly consumer electronics for people stuck at home for extended periods of time).
Today, as car makers have been ramping up production in 2021, there are simply not enough chips available for their vehicles. Toyota has just announced that for this reason it will have to cut global output by 40 per cent in September.
Cryptocurrencies have added their own fair share of pressure, as rallying prices made mining highly profitable, leading to enormous inflation in chip demand and product shortages (e.g. graphics cards).
Again, TSMC is the company producing chips for all major brands like AMD and nVidia, as well as some for Intel itself. It simply can’t keep up with the demand, while political turmoil resulting from worsening relations between China and the US — i.a. over the status of Taiwan — are adding fear that any hostile moves by Beijing against the island could lead to a global economic disaster.
Every crisis is an opportunity however, so manufacturers are scrambling to diversify their supply channels to hedge their risks for the future. There are efforts to both repatriate some of the production — i.e. back to the USA or Europe — as well as look for alternatives to Taiwan in other countries.
TSMC may be based in Taiwan, but its ownership is predominantly foreign and very diverse, so it’s only natural that many shareholders will expect the company to hedge its risks and move some operations abroad.
This is where Singapore shines.
The tiny city-state is already a major manufacturer of electronic circuits and related products. In 2020, they accounted for nearly half of its manufacturing exports. Due to its expertise, qualified labour force and friendly regulatory and tax environment, it has long attracted foreign companies.
In June of this year, GlobalFoundries announced a US$4 billion investment in a semiconductor manufacturing plant in Singapore.
While this is certainly a good sign, it is still a drop in the bucket as GlobalFoundries — with factories in the US and Germany, besides Singapore — accounts for seven per cent of the global foundry market, while TSMC’s share is a whopping 56 per cent.
How can Singapore every try to catch up?
While it cannot possibly clinch the top spot from Taiwan on its own, it can certainly get a sizeable chunk of the pie, particularly as global customers will want to considerably reduce dependence on a country whose future is so uncertain (and which is being threatened by Beijing on a regular basis).
There is going to be lots of business up for grabs in the coming years and Singapore can benefit from it, if it is able to tackle two main roadblocks.
1. Labour
The first challenge is the shortage of labour force.
While Singaporeans are well-educated, most of them choose not to graduate in STEM subjects – and the proportion of STEM degree holders in the society is actually decreasing (as per Census 2020 data).
This is worrying because even if Singapore can open the doors to immigrants to fill these vacancies, it is always safer for investors to rely on a steady supply of domestic workforce which may not be restricted by law under political pressures.
Anti-immigrant sentiments, festering in places in Singaporean society, are a risk that foreign investors will gauge too.
In other words, more Singaporeans should firstly graduate in engineering subjects, particularly related to computer technologies.
Secondly, the country needs to ensure open enough immigration policies to guarantee access to enough talent to work in such highly specialised facilities.
Thirdly, the public should recognise the value these policies bring for the future of the entire country, which could benefit from having a growing stake in one of the most crucial industries on the planet.
2. Water
The second major problem is the perennial issue of the city-state — but one which Singaporean ingenuity has already tackled very well — access to water.
Just how important it is even outside of the Lion City could be witnessed this year when persistent droughts in Taiwan threatened to reduce factory output, exacerbating global supply problems.
This is because chip wafer production consumes enormous amounts of water.
Despite recycling — as much as nearly 70 per cent of water in some cases — the semiconductor industry in Singapore is responsible for 11 per cent of its total consumption in the city.
If it is to rapidly grow in the next decade or two, its demands could easily multiply and if Singapore can’t provide it, new facilities will simply not come here.
Other than that, the city-state is easily one of the best locations for the business, given its stability, predictability, favourable business climate, low taxes, no corruption and general safety and national security.
Just like it was in the recent case of Hong Kong — seeing outflow of financial services and wealthy residents to Singapore after tighter restrictions were imposed by Beijing, eroding the city’s attractiveness — the same scenario can play out for Taiwanese manufacturing.
And yet again, Singapore is one of the best destinations for relocation within Asia, alongside South Korea and Japan (where TSMC is already considering constructing another plant).
For the city-state, it’s another rare opportunity to leverage its advantages and punch way above its weight in another globally critical technology sector.
Whether it can make the most of it is going to depend largely on Singaporeans, whether they see their future in IT engineering and how welcoming they are going to be for highly qualified workers who would have to arrive from other countries to provide enough depth for major semiconductor investments to grow on the island.
Given how electronic chips impact our ability to produce almost everything in the world, it is a remarkable opportunity for Singapore to position itself in in a prime spot in this market for decades to come.
Featured Image Credit: NZ Herald
