Supporting industry required for semiconductors

According to Linda Tan, president of SEMI Southeast Asia, Vietnam is emerging as a potential semiconductor hub.

“The global semiconductor industry’s supply chain shift presents Vietnam as an attractive investment destination, especially for players seeking to diversify their production bases and enhance supply chain resilience,” Tan said last week. “Its proximity to China is a key advantage, fostering a friend-shoring destination and solidifying Vietnam as a pivotal hub for foreign semiconductor companies looking to enhance supply chain resilience.”

However, as per Nguyen Quoc Sy, chair chairman of the VinIT Technology Institute, to manufacture much-needed semiconductor chips, supporting networks with crucial components are essential for the field. Specifically required are precision mechanical systems, high-tech machinery, automated control systems in manufacturing lines, lithography machines for chip fabrication, machinery and technology for semiconductor cleaning, and even infrastructure systems like power grids.

“Semiconductor industry development must include a list for the development and establishment of supporting industries. They even need to be developed ahead of the industry,” Sy said. “Otherwise, reliance on foreign supporting industries would result in significant revenue loss, missed opportunities for supporting industry growth, and a lack of control over related technologies as well as manufacturing processes.”

In reality, the country’s supporting industry is still struggling to reach its full potential, largely due to the predominance of small- and medium-sized enterprises facing numerous challenges in terms of market access, technology, workforce, and most importantly, capital, leaving businesses lacking pivotal conditions to soar.

“During investment and production establishment in Vietnam, Samsung has had to mobilise South Korean entities to supply supporting industrial products for chip technology cycles at factories,” Sy added.

The supporting industry demands significant money inflow, however, being able to access funding, there is a dilemma for native technology firms, according to Nguyen Chi Sang, secretary-general of the Vietnam Association of Mechanical Industry.

“Due to the lack of emphasis on investment policies for research and development in this field, domestic businesses have not been able to expand into the global market, resulting in technological backwardness. As a result, the capacity and production technology remain weak, leading to the failure to meet the requirements of overseas customers,” Sang said at a seminar on the mechanical and automation last fall.

“Furthermore, the semiconductor industry will not be the sole beneficiary, as the mechanical engineering field also provides machinery and equipment for other industries. This leads to overall development for the country’s industrial sector, hence becoming the backbone of the nation’s economy,” Sang added.

To address capital-related issues and propel the supporting industry onto the path of development, the Ministry of Industry and Trade has been drafting amendments to Decree No.111/2015/ND-CP regarding the development of supporting industries. The key change therein is the provision of interest subsidies to enterprises.

However, Truong Thi Chi Binh, secretary-general of the Vietnam Association of Supporting Industries, suggested that without genuinely robust financial solutions, significant changes in Vietnam’s supporting industry may be difficult to come by.

“For the supporting industry to develop, there must be new investments at reasonable prices. While interest rates for loans have decreased, they are still prohibitively high, coupled with turbulent market conditions. Even with a 3 per cent interest subsidy, no enterprise dares to borrow for investing in the supporting industry,” Binh said.

The emergence of an ecosystem of semiconductor industry segments could enhance Vietnam’s attractiveness to major manufacturers, positioning Vietnam as a nation with significant manufacturing activities in the supply chain. Additionally, having such an ecosystem may gradually elevate Vietnam’s involvement in various stages of the value chain.

Deputy Minister of Planning and Investment Tran Duy Dong said, “Investment in the industry enhances Vietnam’s capabilities in research, development, and manufacturing of related products and technologies. This helps reduce dependence on imports and fosters technological autonomy, bolstering competitiveness and adding value to Vietnam’s industrial sector.”

“With a comprehensive ecosystem, Vietnam can contemplate self-production of chips from 2030 onwards.” Dong added.

John Neffeur, president and CEO of the Semiconductor Industry Association, praised the Electronics and Semiconductor Centre, a collaboration between Saigon High-Tech Park Training Centre and SunEdu International Education Company, during his visit in December.

“This training model holds tremendous significance in evolving the field and provides an excellent investment environment,” Neffeur said. “It’s a conducive environment for the semiconductor industry with complete infrastructure, flexible incentive policies, and abundant human resources.”

To bolster its position as a hub for investment, Vietnam continues focusing on three key areas land infrastructure, human resources, and institutional reform, according to Deputy Minister of Planning and Investment Tran Quoc Phuong.

Vietnam will look to build on its semiconductor diplomacy with the formulation of a strategy on developing the much-needed products.