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What is driving the regionalization of the semiconductor industry?

Analyzing the growing prominence of semiconductors

The rapid pace of digitalization in everyday life, business operations, industrial processing, and the increasing integration of AI technology across all industries are fueling the demand for semiconductors.

The semiconductor industry has taken center stage, attracting the attention not only of businesses but also of government leaders who recognize its pivotal role in driving economic growth and ensuring domestic security. The rapid pace of digitalization in everyday life, business operations, industrial processing, and the increasing integration of AI technology across all industries are fueling the demand for semiconductors.

The semiconductor value chain is a complex one. Since no region or country possesses robust capabilities across all segments of its value chain, the process of creating a semiconductor requires a global effort.1 The recent pandemic served as a stark reminder of the critical importance of the safety of semiconductor supply chain to ensure its uninterrupted availability. As supply chains evolve, many countries and regions are moving their production closer for easier access, a trend known as regionalization. Regionalization is driven by the three critical factors: sustainability, supply chain security, and financing opportunities.2 Follow along as we dive deeper into their role in is shaping the semiconductors supply chain industry of tomorrow.

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Source: McKinsey

Investment in R&D and government subsidies

In 2023, the Asia Pacific region emerged as the dominant force in the global semiconductor market, while North America and Europe showed significant growth potential, driven by robust telecom and automotive sectors.3 The United States, anticipating accelerated growth, allocated $52 billion under the CHIPS Act of 2022 for chip manufacturing, alongside offering incentives and tax credits to semiconductor companies. This initiative aims to revitalize domestic production and reduce reliance on overseas suppliers.

Meanwhile, in 2023 European Union enacted the European Chips Act, aiming to strengthen its semiconductor supply chain and increase its global market share to 20% by 2030. With over $45 billion (€43 billion) earmarked for R&D and manufacturing capacity, the Act offers fast-track permitting processes for new European fabs, incentivizes major chipmakers, and establishes mechanisms to swiftly address supply shortages.4 Both, the United States and Europe are spearheading efforts to fortify their semiconductor industries.5

Supply Chain Security

The pandemic caused an unprecedented global semiconductor shortage, initially hitting the auto sector. Reduced chip orders clashed with increased demand for electronics due to remote work and online learning. Manufacturers shifted focus, leaving auto industries struggling when demand returned. Lockdowns, travel restrictions, and safety measures worsened supply constraints, prolonging the shortage.6 One of the key lessons learned from the recent pandemic crisis is that localizing or regionalizing one’s production will reduce costs or at the very least help companies prepare for future disruptions.

Today, the semiconductor industry has mostly rebounded from post-pandemic shortages but faces new security threats. Executives now prioritize geopolitical dynamics as the primary challenge for their businesses.7 Many are proactively managing supply chain risks and pursuing strategies to prevent disruptions. Localizing semiconductor manufacturing is gaining traction to enhance resilience and mitigate disruptions. Governments support nearshoring efforts to ensure steady chip supplies for local companies, ensuring safety and uninterrupted supply.8 Shorter distances give way to more environmentally friendly supply chain solutions, such as connected returnable packaging. By simply replacing one-way packaging with a returnable solution, companies can significantly reduce the costs of shipping, improve product protection, increase workers’ safety, reduce their environmental footprint, and boost brand reputation.

Sustainability Principles

Driven by a blend of voluntary commitments and regulatory pressures, semiconductor firms are actively pursuing emission reduction strategies. According to research, over 2/3 of semicon industry executives are confident they can achieve carbon neutrality within a span of two years.9 The good news is that there are various means to achieve sustainability, from improving manufacturing processes and using more energy-efficient equipment to switching to renewable resources. Innovative packaging solutions, made from recycled post-consumer waste are also playing a crucial role in achieving sustainability in the industry. The growing adoption of fully circular thermoformed plastic packaging for semiconductors aligns with both sustainability and cleanliness objectives.

New solutions can be validated through thorough Life Cycle Analysis (LCA) tools. Nefab’s GreenCalc™, for instance, measures and identifies areas of improvement in supply chains by considering factors like Global Warming Potential (GWP), water and energy consumption, types of packaging materials, transport modes, and logistics flows. The software quantifies the existing and proposed solutions' environmental and financial savings to help validate the choice. Substantial emissions reduction requires collaboration with actors across the entire value chain, as well as implementing new technologies, fostering innovative thinking, and the complete engagement of fabs.

Global partners with local presence

While the semiconductor supply chain will continue to be global, the increasing trend towards regionalization presents an opportunity to enhance its resilience and sustainability, particularly with the local incentives offered by different countries and regions. Companies need to embrace their global reach while reinforcing their local connections to stay competitive, and they should expect the same from their suppliers. Collaboration is key to success in overcoming industry challenges and achieving objectives. In anticipation of a decade of growth, opt for partners with both global reach and a robust regional network capable of maintaining consistent standards and service quality across all regions will be crucial.

With global steering and local coordination, Nefab offers innovative packaging solutions and expert supply chain strategy support to help effectively manage disruptions and optimize your logistics operations. Get in touch to learn how we can support you.

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