The chips are down, but Spain plans to stay in the game
Chips are the raw material of almost every tool of modern life. While digitalization accelerates and their demand increases, the EU and Spain are making plans to stay caught up.
One lingering consequence of the Covid pandemic that may not be at the forefront of our collective consciousness is the global shortage of semiconductors.
Lockdowns, and the resulting homeworking and remote socializing, drove a steep rise in the demand for electronic devices to keep people connected. And even before the pandemic forced people to stay at home, the rapid pace of digitalization had already prompted a vast increase in the use of technology and, with it, the components required to make it work.
The semiconductor chip is a tiny but essential element of every electronic device, from a remote control to a space shuttle.
“You’re probably using around 150 chips in your life,” says Esade’s Xavier Ferràs, Associate Dean of the Executive MBA at Esade. “And COVID-19 has been a kind of time machine; it has placed us in 2031 in terms of digitization. What should have happened in 10 years has happened in 10 months. The world has gone hyper-digitalized. There has been a great surge in demand; we demand constant communications to make videoconferences; we want broadband and 5G.
“There are also many sectors that have recently joined the digital transformation, such as the car, which is increasingly connected and full of electronic devices. Biotechnology and medicine, likewise, use more and more data. This leads to a massive consumption of semiconductors.”
Chip global shortage
However, the rise in demand hasn’t been met with a rise in production — a problem that has the potential to put us back in the dark ages, according to Ferrás: “Europe can go to the Paleolithic without semiconductors,” he says.
“You can't invent a semiconductor factory overnight,” he continues. “Installing productive capacity requires a large investment in capital, specialized suppliers and very specialized people working. Therefore, the fluctuations in demand cannot be absorbed.”
It’s an issue world leaders are aware of and dealing with. Around 85 per cent of semiconductor production is currently centralized in Taiwan and South Korea, but both the United States and Europe have introduced legislation to invest in domestic manufacturing of semiconductors.
In the United States, the CHIPS and Science Act of August 2022 pledged $280 billion for the industry. And the European Chip Act, which was approved by the European Parliament and European Council in April 2023, aims to double semiconductor production to 20 per cent of the world’s market by 2030, with €43 million in public and private investment.
The objectives of the law include establishing designated centers of research excellence and cutting-edge manufacturing facilities that will benefit from accelerated permits to help speed up the journey from lab to market.
Spain’s plan for the chip industry
Spain has already made significant progress with its own chip strategy. In May 2022, the Council of Ministers approved the PERTE microelectronics and semiconductor plan as part of the country’s wider PERTE (Recovery, Transformation and Resilience Plan) measures.
The Spanish plan will be developed around four key strategic goals: the strengthening of scientific capacity, design strategy, the construction of manufacturing plants, and dynamizing the ICT manufacturing industry. The plan will receive €12 million of public investment, with a special commissioner for the governance of PERTE to ensure the coordination and effectiveness of the ministries involved in the project.
Yet while Spain is leading the way, the task is too big for one country to take on, says Ferrás. “No country can develop the entire semiconductor value chain alone,” he says.
“This is an industry of extremely high technological value with astronomical investments in R&D and which can also be located anywhere in the world where there is talent and a favorable institutional framework. This is not just done by one company, not even one country. This is what a continent does.”
A geopolitically sensitive product
Enrique Rueda-Sabater, senior fellow at Esade Geo, agrees. But, he warns, simply increasing capacity for domestic production may not be enough to quash the potential for political fall-out.
“Rare earth elements (REEs) and other critical components of semiconductors are concentrated in a few countries,” he explains. “It’s estimated that 80 per cent of REEs are found in just four countries: China, Vietnam, Brazil and Russia.”
“The implications of the pandemic overlapping with the fallout from the Russian invasion of Ukraine are a prescient illustration of how digital technology can become a geopolitical weapon. The concentration and interdependence of semiconductors in global supply chains mean that there are more than 50 major points where a single region accounts for 65 per cent or more of the total global supply.”
“As our demand for products and services that we consider increasingly essential for daily activity increases, the omnipresence of these vulnerabilities means that practically no company is going to escape them. Their evolution should be part of the strategic radar and early warning systems of companies and countries alike.”
And while Spain’s PERTE is a milestone for innovation that aims to tackle this bottleneck, Xavier Ferrás warns against complacency.
“It’s all good news,” he says. “The winds of industrial policy are blowing. But we can’t fall asleep. When the European funds run out, will we continue with the momentum acquired? We need a national strategic plan for semiconductors until 2040 at least, with clear budgets and shielded from political power.”
“An agreement entered into with business organizations, unions, chambers of commerce, universities and business schools, as a minimum. Let no one deviate from the path that has begun to be marked.”