BrazilShift in semiconductor development to China could see trade confrontation
Increased demand for semiconductors, particularly from the automotive industry, offer considerable opportunities for product-developers to create high-growth potential. However, increased competition from China in the semiconductor market, focused on locally developed chips, is likely to see global chip suppliers locked out of an increasingly key R&D development region.
The automotive industry is in a period of transformation. New technologies, from automation to electric powertrains, are in the development pipeline, with various pressures towards the development of both. Connectivity, meanwhile, is seeing increased numbers of features added to vehicles, from maintenance and mapping to information and entertainment. A semiconductor material has an electrical conductivity value falling between that of a conductor, such as copper, and an insulator, such as glass – and such technology could be increasingly important in the future of automotive manufacturing due to the rise of electric vehicles.
In a new article from McKinsey & Company the strategy firm explores how the semiconductor industry may benefit from the shift to ever more computing power and sensor demand. A similar survey last year showed that Chinese manufacturers particularly stand to gain considerably from developments of the technology. 
Demand from the automotive industry has grown markedly since 1996, with total value increasing from around $7 billion to almost $30 billion in 2015. In total they now represent more than 8% of total semiconductor sales, up from around 5% in 1996.
The growth of the industry is set to continue, at a healthy 6% per annum until 2020, higher than the 3-4% projected for the sector as a whole, with total market value in the automotive segment projected to be between $39-42 billion.
Different segments represent considerably different changes in demand however, with some areas, such as electronic safety features to see their market share increase from around 17% in 2015 to 24% by 2020. Electric vehicle demand, meanwhile, is set to see addition growth in various segments, such as memory, micro-components, logic, and optical and sensors. Strategic mapping of key vehicle features to propositions, could allow semiconductor producers to meet market demand in a rapidly changing landscape.
China’s clout
China’s clout in the semiconductor and sophisticated engineering space meanwhile continues to strengthen. The country has invested heavily in the development of engineering talent, which, has allowed both domestic and multinational development centres to meet key staffing demand. R&D spending in the country has increased considerable – although nationalistic policies may see curbs in foreign direct investment into R&D – now four times higher than in 2007.
According to the firm’s survey of 80 executives at a design centre, key aspects of the country’s development in the product-development and design space (each respondents was given 100 points to allocate), include improved capabilities within China 37 points, increase in China’s domestic consumption, 21 points, desire on part of multinational corporations (MNCs) to lower cost of production or design, 19 points, and government support, 12 points.
The research suggests that the demand for semiconductors is likely to grow considerably in the coming years, up from around $350 billion in 2016 to close to $500 billion by 2020. The boost, in part, will stem from increased government support of the industry, to create sophisticated product components, and whole products, that have their origin in China – with China-owned and -based suppliers increasing from 22 to 33 as an allocation of 100 points by survey respondents.
As the country focuses increasingly on semiconductor production, MNCs are likely to increase their component sourcing from regional suppliers, while MNC supplier with global locations are likely to lose out, falling from 44 points to 33 points by 2021. According to the report, international suppliers may need to consider investing in local development centres, although considerable pitfalls may follow, given the difficulty of navigating “China’s available leadership talent, regulatory issues, and intellectual-property environment.
