Charting the future of the global semiconductor industry and Thailand's next moves
As a new global production supply chain takes shape, several production facilities are expected to relocate to Thailand
The semiconductor industry continues to struggle with supply and demand imbalances, exacerbated by a surge in demand and disruptions in the manufacturing supply chain.
Global demand for semiconductors is expected to continue to surge as numerous countries shift toward digital economies. However, a series of events have disrupted the supply of semiconductors, including the China-US trade war, which escalated into a technology war, the COVID-19 pandemic, and the Russia-Ukraine dispute that resulted in surging raw material prices. While the imbalance has somewhat eased with the resumption of increased production capacity and output, the market dynamics and the balance between supply and demand still require close, ongoing monitoring as demand is poised for yet another surge, driven by the gradual recovery of global economic conditions. Conversely, the semiconductor manufacturing supply chain remains vulnerable to a multitude of risks.
Such imbalances have prompted many countries to prioritize securing chip manufacturing and promote domestic production.
Currently, many countries are vigorously securing and strengthening their domestic semiconductor industry. Prominent examples include the US and the EU, both of which have enacted the CHIPS Act, with an aim to boost domestic semiconductor production. Similarly, Asian manufacturers are firm in maintaining their semiconductor production positioning, which includes resorting to trade retaliatory measures. A notable example is China, with retaliations against technological barriers imposed by the United States. Nonetheless, several challenges continue to hinder China’s semiconductor industry development. Most notably, domestic production volumes still fall short of meeting local demand. Furthermore, many countries have relocated manufacturing of specific semiconductor and parts to other countries, with a notable focus on the Asian region, renowned for its production capabilities.
SCB EIC views that the relocation of foreign semiconductor production facilities to Thailand will play a pivotal role in enhancing the nation's capabilities to become both a front-end and back-end semiconductor manufacturer in the future.
As a new global production supply chain takes shape, several production facilities are expected to relocate to Thailand, accompanied by increased investments in the semiconductor and parts manufacturing sector. SCB EIC anticipates that Thailand's chip industry holds the potential for further advancement, especially in front-end and higher complexity back-end processes. Meanwhile, a group of Thai companies exporting semiconductor and parts to China may experience a decline in orders due to US trade barriers. Nevertheless, SCB EIC views that increased investments in Thailand's semiconductor industry will have a far-reaching positive impact on domestic employment, eventually giving rise to a new production supply chain that can better serve the domestic market.
Nonetheless, Thai companies need to embrace change, either by forming new alliances or strengthening own capabilities to adapt to evolving demands.
Future development of Thailand's semiconductor sector remains challenging, primarily due to technological constraints and substantial investment prerequisites. Thai companies aspiring to be an integral part of the new semiconductor production supply chain must get into the swing of things by implementing these recommended strategies: 1) Establishing collaborations with governmental bodies and private entities to fortify strength within the semiconductor manufacturing industry. 2) Actively looking for joint venture opportunities with new partners and/or co-investors by capitalizing on the advantages of relocating production bases. 3) Strengthening domestic semiconductor production capabilities through increased focus on research and development and 4) Promoting workforce skills development, both hard and soft skills, to align with the future, evolving demands in the semiconductor industry.
