Global geopolitical dynamics continue to dominate media coverage. At the same time, however, national leaders are actively working to mitigate these dynamics. Over the past three months, we have witnessed numerous bilateral and multilateral collaborations aimed at reducing rising geopolitical tensions following COVID-19.
In general, geopolitical tensions are divided into two: tangible (tangible) and intangible (intangible). Intangible geopolitical tensions dominate the news through control of other countries' territories and/or natural resources to achieve prosperity, security, and strength. What is rarely discussed is 𝑖𝑛𝑡𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝑔𝑒𝑜𝑝𝑜𝑙𝑖𝑡𝑖𝑐𝑠 through mastery of knowledge and technology (Moisio, 2018).
The tension between the United States (US) and China is largely driven by the second factor: the struggle for technological hegemony. Mastery of technology will determine the future of global geopolitics. High technology is a source of prosperity and facilitates national security and power. One such technology is semiconductors, which former Intel CEO Pat Gelsinger claimed will be more important than oil in the future.
President Prabowo Subianto has designated semiconductors as a strategic industry that will be the driving force of future economic growth. How should Indonesia develop its semiconductor industry?
𝐊𝐞𝐛𝐢𝐣𝐚𝐤𝐚𝐧 𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐢
To form an economic structure capable of growth, the government needs to develop strategic industries and companies as its locomotives – 𝑖𝑛𝑑𝑢𝑠𝑡𝑟𝑖𝑎𝑙 𝑝𝑜𝑙𝑖𝑐𝑦 (Agarwal, 2023). Industrial policy will be achieved through subsidies, tax incentives, infrastructure development, protective regulations, and support for R&D.
One of the industrial policies that is praised for its contribution in growing and changing the economic structure of a country is the 2025 Industrial Development Plan. There are 10 strategic industries that are targeted to contribute 40% of China's exports by 2025. By integrating universities tasked with developing staff in R&D, professionals, technicians, and operators; research involving universities, research institutions, especially the Industrial Development Plan; business people and local governments that operate various industrial areas make it a success.
A study conducted by the Chinese Institute of Technology (ICT) shows that three strategic industries have achieved China's targets: high-speed rail, electricity, and marine technology. In general, technology-based Chinese companies are becoming increasingly competitive, both domestically and globally. Although the early 21st century was dominated by low- and medium-tech industries, this industrial policy has successfully delivered technological independence domestically and entered the global market.
To maintain its technological hegemony, the US issued the 2022 Semiconductor Hegemony Act. This law aims to re-establish US leadership in semiconductor production, reduce dependence on foreign supplies, create high-value-added jobs, and of course strengthen national and economic security. The total budget allocated reaches US$280 billion for 10 years. The largest budget (US$174 billion) is used for R&D, STEM education, and human resource development within it. US$50 billion is allocated for incentives and subsidies for semiconductor companies producing in the US. Last July, the National Bureau of Statistics (NBS) stated that 130 projects in 28 states with private sector investment reaching US$600 billion have been launched since the law's enactment. This investment will create 500,000 jobs. This will include 69,000 workers in production facilities, 122,000 in construction, and 335,000 in other industry-supporting jobs.
semiconductor industry
produces more than 60% of the world's semiconductor needs. Its dominance for the most advanced chips (below 7nm) even reaches 90%, with the largest producer being TSMC. In his lecture at MIT in late 2023, Dr. Morris Chang, its founder, stated that Taiwan was right in choosing semiconductors as its strategic industry. Starting with the establishment of the Indonesian Institute of Tribal Studies (ITRI) in 1973. Three years later, ITRI succeeded in convincing the Indonesian Institute of Tribal Studies (ITRI) to 𝑜𝑓 𝐴𝑚𝑒𝑟𝑖𝑐𝑎 (RCA) to transfer semiconductor manufacturing technology to Taiwan. The following decade, the birth of the 𝑈𝑛𝑖𝑡𝑒𝑑 𝑀𝑖𝑐𝑟𝑜𝑒𝑙𝑒𝑐𝑡𝑟𝑜𝑛𝑖𝑐𝑠 𝐶𝑜𝑟𝑝𝑜𝑟𝑎𝑡𝑖𝑜𝑛 as the pioneer of the 𝑝𝑢𝑟𝑒-𝑝𝑙𝑎𝑦 𝑓𝑜𝑢𝑛𝑑𝑟𝑦 (specialized contract manufacturing) business model.
Furthermore, Dr. Chang outlined five factors that make Taiwan dominant in this industry. First, a sufficient supply of qualified talent to produce chips, including not only engineers but also technicians and operators. Second, low unemployment among chip manufacturers due to their well-being. Third, the geographic concentration of three Taiwanese factories connected by high-speed trains facilitates employee mobility. Fourth, the learning curve of semiconductor industry players leads to lower costs. And finally, the ecosystem formed over the past three decades has made the chip industry supply chain intact.
In the 𝑢𝑝𝑠𝑡𝑟𝑒𝑎𝑚, local companies that design chips are quite available. For 𝑚𝑖𝑑𝑠𝑡𝑟𝑒𝑎𝑚, local companies that supply production equipment, 𝑠𝑖𝑙𝑖𝑐𝑜𝑛 𝑤𝑎𝑓𝑒𝑟 are available. For production equipment manufacturers like ASML, 𝐴𝑝𝑝𝑙𝑖𝑒𝑑 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠, or 𝐿𝐴𝑀 𝑅𝑒𝑠𝑒𝑎𝑟𝑐ℎ all have training and service centers in Taiwan. Finally, 𝑑𝑜𝑤𝑛𝑠𝑡𝑟𝑒𝑎𝑚 are also present in the form of assembly and testing companies, such as ASE. This entire ecosystem didn't form suddenly, but gradually with support from the central and regional governments where the factories are located.
Vietnam initially fell into the global supply chain for low-value-added semiconductors. However, last March, the government approved the construction of a US$500 million semiconductor manufacturing facility. Expected to be completed before 2030, this project demonstrates Vietnam's commitment to becoming a player in the industry. This seriousness is also in line with the 𝐿𝑎𝑤 𝑜𝑛 𝑆𝑐𝑖𝑒𝑛𝑐𝑒, 𝑇𝑒𝑐ℎ𝑛𝑜𝑙𝑜𝑔𝑦, 𝑎𝑛𝑑 𝐼𝑛𝑛𝑜𝑣𝑎𝑡𝑖𝑜𝑛 (Research and Innovation Law) enacted by the National Assembly of Vietnam, which took effect on October 1. This law has three priorities: building and expanding research infrastructure, creating regulations that support risk-taking and innovation, and flexible financing mechanisms to support researchers and their institutions.
To make it successful, the strategy 𝐶=𝑆𝐸𝑇+1 is established. Where C is Chips, S indicates specialization, E indicates electronics, T is talent, and +1 indicates Vietnam as a safe haven for investment in the semiconductor sector. There are 3 phases in its development: Phase 1 (2024-2030) will selectively attract foreign investment, establishing 100 design companies, 1 small-scale production facility, and 10 factories for assembly and testing. Phase 2 (2030-2040) adds 200 design companies, two large production facilities, and 15 factories for assembly and testing to ensure independence in design and production. Phase 3 (2040-2050), adds 300 design companies with 3 production facilities and 20 assembly and testing facilities.
To meet this demand, Vietnam will need 50,000 to 100,000 engineers specializing in semiconductors. This need will be supported by 18 universities that will receive laboratory equipment to train their students, with scholarships provided to stimulate prospective students' interest and guarantee future employment. The Vietnamese government also allocates substantial research funding to support researchers in developing patents that will be utilized by industry in the future.
The
increasing integration of technology into our daily lives requires the presence of semiconductors. From military drones to electric cars to fans, semiconductors are essential. Indonesia's independence in meeting its needs must be realized not only through the preparation of semiconductors. The central government's commitment, manifested in legislation, makes funding for research and human resource development through appropriate laboratories and curricula possible. Regional governments, with world-class universities, need to play an active role in providing and facilitating business investment in the semiconductor industry. Adequate financing with various incentives is essential for industries committed to investing, and Danantara can start.
The projected value of the semiconductor industry in 2040 is around US$2 trillion, and if Indonesia contributes 2% to 5% of this, it could be a good start toward realizing this independence. It would also enable Indonesia to become a developed nation by 2045.
Badri Munir Sukoco,
Professor of Strategic Management,
Faculty of Economics and Business, Universitas Airlangga