HOME ARTICLES Thailand’s New Semiconductor Strategy: Ambitious but Challenging
A microscope and wafer are displayed at the Thai Microelectronics Centre during a Thailand Board of Investment visit on 3 October 2024. (Photo from BOI News / Facebook)
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Juthathip Jongwanich|Archanun Kohpaiboon
Thailand has ambitious plans to upgrade its semiconductor sector. There are challenges ahead, however, which require good governance and oversight.
Thailand has ambitious plans to expand into higher-end segments of the semiconductor manufacturing chain such as chip design and wafer fabrication. There are, however, significant challenges ahead which require good governance and oversight as well as policy certainty.
On 25 October 2024, the National Semiconductor and Advanced Electronics Industry Policy Committee of Thailand (known as the National Semiconductor Board, NSB) was established to promote the semiconductor and advanced electronics industries. Thailand’s semiconductor sector is concentrated on assembling and packaging operations, which are much smaller in size and less lucrative compared to the overall global semiconductor chain (which consists of higher-end activities such as chip design and wafer fabrication). Chaired by the prime minister, the NSB is composed of numerous ministers, key economic government agencies and the president of the Federation of Thai Industries.
The formation of NSB is a result of incremental policy efforts undertaken in the past to enhance the country’s engagement in the semiconductor industry’s global value chains amid the ongoing geopolitical tensions between the US and China. Prior to the establishment of NSB, the investment incentives provided by Thailand’s Board of Investment (BOI) between 2014 and 2022 were moderate.Most of the policy efforts during this period were concentrated on promoting the electric vehicle (EV) industry. As the technology war between the US and China became more intense from 2021 onwards, many multinational enterprises (MNEs) in the semiconductor industries (such as Hana Semiconductors, Infineon, and Delta) expressed interest in investing more in Thailand. As a result, the BOI moved higher-end activities such as semiconductor design and wafer fabrication up its list of investment incentives granted from 2022 onwards.
The NSB has two subcommittees. The first subcommittee is tasked to develop a national strategy for the semiconductor and advanced electronics industries and to lay down strategic moves to entice investments from MNEs in these industries. The second subcommittee will focus on ramping up human capital to meet the demand for skilled workers in these industries.The target is to produce 86,000 engineers and scientists for the semiconductor and advanced electronic industries within the next five years (2025-2030).
A private consulting firm has been engaged to develop a roadmap for the semiconductor industry is drafting to formulate the national strategy for the semiconductor and advanced electronics industries. The roadmap will focus on developing power module segments, which are used in EVs, data centres, and energy storage systems. As such, it is expected to promote only certain parts of the semiconductor devices industry. This narrow focus could be a missed opportunity. The roadmap’s industry coverage should be expanded to cover other electronic devices whose export performance has been outstanding in the past few years, including communications, sensor imaging, and optical devices.
An important issue in the industry roadmap is the participation of local firms in the country’s semiconductor supply chains. Thailand should not repeat the mistake of enticing MNEs to operate in enclaves with the limited participation of local firms, which the country made in the 1980s and 1990s. In fact, domestic linkages should be a core component in the roadmap.However, care should be taken as to how this should be done. Imposing measures such as local content requirements is doomed to fail as production networks in the global semiconductor industry operate within a small network of qualified and trusted suppliers.
Thailand should consider supporting the development of local independent fabless manufacturers which design and market semiconductors without operating physical fabrication facilities. Such companies serve downstream manufacturers which sell electrical appliances, wearable health devices, health monitoring devices, and other smart technology products.
Thailand should consider supporting the development of local independent fabless manufacturers which design and market semiconductors without operating physical fabrication facilities.
Thailand should also consider promoting investments in upstream wafer fabrication. Given the current development of chip technologies, investments in smaller and cheaper fabrication facilities are viable. Smaller fabless companies in Thailand can help turn chip designs into prototypes, and make the local sector more important strategically. Promoting such investments would enable Thailand to strengthen the ecosystem of its semiconductor industries. The presence of wafer fabrication facilities would encourage firms to turn their ideas into prototypes and participate in chip design. This should be accompanied by other forms of support to promote technology startups such as venture capital facilities. These strategies would create a new eco-system in the electronics and electrical appliances industries, giving local entrepreneurs space to grow independently, thus creating a brighter career path for local talents, and strengthening downstream industries.
It remains open to question whether the NSB will achieve its goals. There are significant challenges ahead. The fiscal resources required to support a private-public partnership for the investments will be sizable. The NSB should learn from the past failure of Alphatec Electronics, which was one of Thailand’s largest electronic companies with wafer fab projects in the mid-1990s (an executive had used company funds for activities unrelated to its operations).Effective implementation of the roadmap will require good governance mechanisms.The industry roadmap should be implemented over a longer time horizon with well-defined targets and milestones.
The establishment of the NSB signals Thailand’s desire to move forward in building a new ecosystem for the semiconductor and electronics industries. Enlarging the pool of skilled workforce is the right approach to enticing MNEs to the industry. The sub-committee chaired by the Ministry of Higher Education, Science, Research and Innovation should send a strong policy signal on Thailand’s commitment to upgrade the country’s human capital. The NSB should also put in place a competent monitoring system to fine-tune the existing policy initiatives. It is time for Thailand to muster its political will and commit more resources to play catch up in the semiconductor and electronic industries.
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The authors would like to express special thanks to Punnapong Ongpipattanakul, NIST International School, for his research assistance under the internship programme at the Research Center of International Competitiveness and Development Studies, Faculty of Economics, Thammasat University.
Juthathip Jongwanich is Associate Professor in the Faculty of Economics at Thammasat University, Bangkok.
Archanun Kohpaiboon is a Visiting Senior Fellow at the ISEAS - Yusof Ishak Institute, and an Associate Professor in the Faculty of Economics, Thammasat University, Bangkok, Thailand.
Technology Thai Economy Thailand
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