Considering the size of semiconductor, its role and various use which includes use in the military equipment, a smooth semiconductor supply chain is vital and any disruption to the supply chain is a cause of concern and worry like saw during the Covid-19 pandemic.
As semiconductors are important to today’s global economy, as such industry generated a revenue of US$ 574.1 billion in 2022, which is growing providing jobs to many people in its various stages of development from its design to distributions worldwide.
It became a key strategic industry sector for many nations with many governments and companies investing heavily and competing and cooperating in the research and development to maintain competitiveness and to remain ahead against others in the innovation. As chips supply chain goes from a design and development to fabrication to testing and assembly and distribution. A disruption to its supply chain is being watch by closely by many countries to thwart misadventure by any country.
Thus, any geopolitical event has the capacity to further disrupt the supply chain of chip. As the capacity to supply the chips to remain low and intent to become normal by the end of 2023 and fully recover in 2024. With growing role of semiconductors in the tech-geopolitics and to counter China in semiconductors supply chain industry, in July 2023, India and Japan signed the Memorandum of Cooperation (MoC) ‘Japan-India Semiconductors Supply Chain Partnership’ to expand their cooperation in the semiconductors supply chain.
Understanding India-Japan MoC on Semiconductor Supply chain
In such regard, the signing of MoC between India and Japan, is considered as a critical and strategic move to counter rise in China’s capacities in the semiconductors industry. As the India-Japan Special Strategic and Global Partnership best define a robust relationship between both nations, they share similar threat perception caused by China and its increasingly assertive and disruptive acts.
As China has increased its subsidies in semiconductor R&D, spending US$ 150 billion in 2022, experts argue the US shouldn’t copy China and it isn’t a best strategy in its race against China. Rather, the US should use its network of allies and partners to its advantage and should look forward to a competition with China than controlling and putting restriction on China.
As Professor Wei Shaojun of Tsinghua University, involved in China’s semiconductor policy argues such act isn’t a bad thing for China, and it will act as a catalyst for growth of the semiconductor industry. China dominance in the rare earth reserve, increase in its capacity and capability to produce advanced semiconductor, which they could use it to its advantage.
In such a scenario, the MoC signed between India and Japan, intend to counter China, as it aims to jointly develop the chips industry between India and Japan. With semiconductors remain ubiquitous, continue to remain vital in the tech industry, the discovery and applications elements like the graphene, quantum computing and the use of photonic circuits will further advance the application of semiconductor in coming years. As the cooperation aim to addresses such aspects it promotes an industry-to-industry and government-to-government cooperation with an aim to bring resilience in the semiconductors supply chain.
Considering the semiconductor industry will become a US$ 1 trillion industry by 2030, McKinsey argues that the industry will grow at an average of 6 to 8% a year till 2030, and thus a volatility in the industry will impact the US-China trade war, which will put other nations in an unwanted situation.
Due to US-China techno-geopolitics, electronic giants is looking to diversify its supply chain and India is on their radar. As India aims to build its semiconductors industry, a place in its supply chain and become US$ 1 trillion electronic market and thus India needs a strong and reliable tech-partnerships with like-minded nations as argued by Pankaj Mohindroo, Chairman of India Cellular and Electronics Association.
Growth in the semiconductors industry and India’s plans is aligning, and thus India’s MoC with US and Japan needs to be strengthened and secured. Under the MoC, India is pushing to have a resilient semiconductor industry for which cooperation with Japan is utmost relevant. As they will cooperate in the manufacturing, equipment research, designs, talent development, and supply. With India’s semiconductors mission is progressing at a rapid pace, India argue the cooperation with Japan highlights the growing confidence of the world in India’s capabilities and commitment to assemble a comprehensive semiconductor ecosystem in the country.
As the signing of the MoC is a vital step in the Indo-Japanese bilateral cooperation in the field of science and technology which was formalised in 1985 and based on a healthy tech cooperation, MoC will assist the cooperation to move ahead in enhancement of semiconductors supply chain, recognising its noteworthiness in the advancement of industries and roles in the digital technologies. As India moving ahead with expansion of electronic markets, its share in global semiconductors supply chain, digital economy and enhancing its R&D capabilities, the cooperation was view as a strategic move which will allow them to use their complementary strengths to their advantage.
As China continues to lose its allure for foreign companies, with increasing labour cost and the 2021 data security law making difficult for foreign companies and discomfort to work in the country and they’re looking for somewhere else to invest and manufacture. On the other hand, the MoC, reflects the global businesses are reconfiguring post-pandemic supply chains. It being effective for the next five years, allowing India to use its excellent human resources in field such as semiconductors design and Japan to use its strengths in the silicon wafer and ingot manufacturing, raw materials such as gasses, display and equipment manufacturing allowing both to capitalise on each other strengths.
As manufacturing base being move away from China to many nations including India, many experts argue the development of India’s semiconductors industry will not pose a threat to China in short term, as China is a big player in the chip industry and world still depend upon China’s capacity and strengths. However, China’s unfriendly business acts and policies, and a difficult business environment vis-à-vis India’s Made in India policy gave foreign companies and governments to cooperate and collaborate with India and MoC is a reflection of growing relevance of India in the business and manufacturing network of the world.
As the MoC will create employment in the Information Technology, it focusses on five fronts, design, manufacturing, equipment research, talent development and to bring resilience to the semiconductors supply chain, for which, India’s Ministry of Electronics and Information Technology is working to create a conducive environment for electronics manufacturing.
As under MoC, there will be a US$ 35.9 billion japanese investment in India by 2027, and in near future such cooperation could see enhance cooperation in defence equipment and technology. As Micron Technology investing US$ 2.75 billion and setting up a semiconductors unit in India and Applied Materials to invest US$ 400 million and set up a collaborative R&D centre. In return, India introduced a financial incentive of US$ 10 billion to support 50% of the project cost in India.
As India’s Foreign Minister S Jaishankar argue Japan’s role in many India’s ambitious projects like the Maruti, Metro, high-speed rail and the emerging and critical technologies is commendable and sees them as natural partners. Despite, Foxconn withdrawal from US$19.5 billion agreement with Vedanta for the semiconductors joint venture, India’s MoC with the US and Japan, highlights such nations are interested and are focusing on supporting industries in India which includes collaborating with India.
On Indian government approving MoC on October 25, 2023, Hiroshi Suzuki, Japan’s Ambassador to India welcome the approval and calls it a significant step which will strengthen Indo-Japanese ties promoting a G2G and B2B cooperation with a resilient chips supply chain. Further, India’s PM Modi welcome the move and argues it will creates new jobs opportunities in the IT sector, broaden bilateral cooperation in the electronic ecosystem and strengthen the chips supply chain. With this, it will support the Semicon India Program 2021, which plays a pivotal role to fund, support and develop India’s capability in semiconductors supply chain.
As MoC will promotes the Make in India initiative to enhance the tech and electronics ecosystem, it also reflects India is securing its chips supply and demand and to develop robust chips making sector and to be self-reliance. As Japan Foreign Minister, Yōko Kamikawa stress there is a need to further strengthen cooperation between both nations to develop the ‘Japan-India Special Strategic and Global Partnership’. As India and Japan are working to improve the investment environment and to removes all the bottlenecks in the infrastructure development to jointly set up a resilient semiconductors industries in India and achieve ‘India Semiconductor Mission’ and foster innovations in the technology sector.
Way Forward
As everyone needs a reliable chips supply chain which also include China. The current state of the world provides India with a chance and to use it to its geopolitical significance to advance its tech industries with assist from Japan. As MoC highlights the significance of India in the tech industry, it also signed a Memorandum of Understanding (MoU) with the EU for a resilient semiconductors ecosystem. Considering, India’s cooperation with the US, Japan and now EU reflects more nations are coming together against China which is also a worrying sign for global tech and electronic industries.