The US-China Chip War and Prospects for South Korea-India Semiconductor Cooperation

Introduction

The semiconductor industry has become crucial in the current era of the fourth industrial revolution. Semiconductors are now as valuable as oil due to their widespread use in both consumer and military applications. Both the US and China have realized the importance of semiconductors for their economic security and national defense. This has led to intense competition between the two countries for dominance in this sector. Under this competition, both have changed their previous domestic and foreign economic policies, guided by neoliberalism’s idea of free market, and begun to take nationalistic and unilateral actions, driven by emerging geopolitics, in their national economic and security interests. These unilateral actions have huge impacts on other Asian economic powerhouses’ economic security. Indeed, China’s new quest to realize a self-reliant semiconductor strategy directly impacts South Korea (hereafter, Korea)’s semiconductor industry, which significantly relies on China for export and production. The US’s unilateral action under the chip war has also influenced Korea as Washington has pressured Seoul to downgrade its trade and manufacturing ties with China. The US-China chip war has also influenced India’s semiconductor strategy. Amid the ongoing chip war, India seeks to construct a resilient supply chain and decrease its reliance on China for imports. New Delhi is also looking to develop its semiconductor industry and build chip ties with like-minded countries in production and workforce development.

The ongoing US-China chip war has opened up significant opportunities for Korea and India to form a semiconductor partnership. This research paper aims to analyze the prospects of the India-Korea technological partnership by examining the dynamics of the US-China chip war within the context of Korea and India, and by studying both countries’ changing domestic political economy. Although India and Korea have established strong political, trade, and investment ties since the post-Cold War era (Kumar, 2015a, 2015b, 2021), they have not yet explored the potential of technological partnerships regarding semiconductors. Since Korea is striving to maintain its dominance in the chip industry, and India is trying to become a significant player in the global semiconductor value chain, there is immense scope for collaboration between the two leading democracies in Asia. This research paper identifies three areas where Korea and India could collaborate: semiconductor trade partnerships, semiconductor production partnerships, and semiconductor workforce collaboration. These areas are not randomly selected, but are chosen for reasons based on the focal point of the US-China chip war. This research paper provides a detailed analysis of why India and Korea should collaborate in these three areas.

The study utilized two research techniques. First, the author conducted an extensive content analysis of government documents, think-tank policy reports, academic articles, and authentic newspaper articles. This analysis primarily focuses on Korean language content, which extensively covers the development of the semiconductor industry. Second, the author conducted several in-depth interviews with policymakers and scholars who have been following the US-China chip war and the semiconductor industry.

This paper makes three specific contributions. First, it highlights how the tech war between the US and China creates new opportunities for other Asian economic powerhouses to cooperate in the semiconductor industry. Previous literature has mainly focused on the impact of the US-China chip war on both major powers’ emerging strategies to secure their economic security and military interests (Miller, 2022) or on how current East Asian dominant semiconductor powerhouse, such as Korea, should secure their manufacturing base (Kwon, 2022; Bae, 2022; Yoon, 2023). Therefore, not much attention has been given to how this chip competition could bring convergence for Asian like-minded middle powers. Second, this paper enriches the existing literature on India-Korea relations by introducing the first study on Korea-India technology partnerships. Most studies have mainly focused on general security and economic issues, such as trade and investment, between the two countries. Finally, this study provides insights for policymakers to set a new agenda for India-Korea partnerships as both countries celebrate the 50th anniversary of their diplomatic ties in 2023.

The paper is structured as follows: First, it will introduce the US-China conflict over the semiconductor industry and its effects. Second, it will analyze the reasons behind the significant convergence in the semiconductor trade partnership between Korea and India amid the chip war. It will then explore the potential for a semiconductor production partnership between these two countries. Additionally, it will examine opportunities for collaboration between the semiconductor workforces of Korea and India, amidst the ongoing semiconductor talent war. Finally, the paper will provide concluding remarks.

Decoding the US-China Chip War

In the current era of the fourth industrial revolution, the semiconductor industry has emerged as a crucial and strategic sector, leading to intense competition between the US and China for dominance. Semiconductors are now considered as valuable as oil due to their widespread use in both consumer and military applications. It is widely believed that the key to dominating the fourth industrial revolution industries, such as artificial intelligence, 5G, cloud, Internet of Things, autonomous vehicles, and bio-health, will be determined by who emerges as the leader in the semiconductor industry, particularly in advanced semiconductors (Bae, 2022).

The increasing importance of semiconductors has led to the emergence of the US-China chip war. The initial cause of the chip war was the growing political tension between the US and China. The Chinese leaders felt that they needed to secure ‘semiconductor sovereignty’ to become a true economic superpower in the future. China relies heavily on the US and its security allies for advanced chips that power almost everything in its tech industry. This dependence is vulnerable to China’s economic security and its future military ambitions. Against this backdrop, President Xi Jinping called for the development of a self-reliant semiconductor industry in China, as he believes that “chips are as important for manufacturing as hearts are for humans.” As a result, President Xi dismantled the previous regimes’ neoliberalism-guided developmental strategy, which promoted foreign companies’ presence in China in the post-Cold war era. Instead, He launched an inward-looking state capitalism strategy, favoring Chinese companies over foreign companies, to achieve high self-sufficiency under the ‘Made in China’ plan. China also adopted a nationalist approach to realizing independence in the semiconductor industry by introducing an import substitution strategy for this sector (Lee(b), 2022). On one hand, Beijing seeks to emerge as a self-reliant semiconductor giant, while on the other hand, it aims to challenge the dominance of existing semiconductor players, such as the US, Korea, and Taiwan (Kwon, 2022).

The US views China’s efforts to become a leader in semiconductor manufacturing as a direct threat to its economic and military security (Miller, 2022). Therefore, the US government took steps to curb China’s semiconductor rise. During the Trump administration, a ‘trade war’ was initiated with China, resulting in a 25% tariff on Chinese imports, particularly items related to the Made in China plan, such as semiconductors and related equipment (Bae, 2022). The COVID-19 pandemic caused a disruption in the semiconductor supply chain, which changed the US’s perception of the chip competition and intensified the US-China rivalry. President Biden has stated that ‘China is trying to dominate the global chip market, which has many applications, including military ones (The White House, 2022).’ As a result of this perception, the Biden administration has turned the US-China trade war into a chip war. It implemented a nationalist strategy by passing the ‘CHIPS and Science Act of 2022’ to achieve its goal of promoting products that are ‘Made in US’. This move indicates a shift away from the country’s decade-long commitment to promoting international free trade, which is a fundamental idea of neoliberalism. With the introduction of this act, it also embarked on a lengthy journey to compete with China for semiconductor hegemony (Lee(a), 2022).

The US-China chip war intensified when the Biden administration extended the scope of chip competition beyond bilateral to multilateral. The US proposed the Chip-4 alliance in 2022 as part of a more comprehensive plan for a ‘democratic semiconductor supply chain’ to reduce reliance on the China-centric supply chain (Yoon, 2023). The initiative includes Japan, Korea, and Taiwan, all of which excel in specific semiconductor industry segments. For instance, Japan in raw materials and equipment supply, and Korea and Taiwan in manufacturing. The US also started to build a semiconductor partnership with India on both bilateral and multilateral levels after the Modi administration decided to forge a strong relationship with the US amid the India-China security tension in 2020 (Kumar, 2023). The US elevated its strategic partnership with India with a focus on strengthening semiconductor partnerships. American companies, such as Micron Technology, started to shift their production from China to India as China began to use economic coercion to punish US companies working in China. The US also seeks to strengthen its semiconductor ties with India in the Quadrilateral Security Dialogue (hereafter, QURD) formworks, which includes, the US, India, Japan, and Australia.

The ongoing chip war between the US and China is having a significant impact on the geo-economics landscape of Asia. The conflict between these two superpowers over semiconductors has led other Asian economic giants to reassess their semiconductor strategies, which has resulted in the emergence of new opportunities for semiconductor partnerships in Asia. In the rest of this paper, we will discuss how the US-China chip war, along with various domestic factors, is creating fresh opportunities for semiconductor collaborations between Korea, Asia’s dominant semiconductor power, and India, an emerging power in the region.

Navigating Strong Convergence in Korea-India Semiconductor Trade Partnership

In this section, we will analyze the reasons behind the substantial convergence in the semiconductor trade partnership between Korea and India. First, we will investigate the trade dilemma faced by both countries due to their dependency on China and their policy responses. Then, we will highlight the potential of the trade partnership between Korea and India.

Korea’s Dependence on China for Semiconductor Exports and Emerging Export Dilemmas

Korea’s Dependence on China for Semiconductor Exports

Korea is an exporting nation. It ranked sixth in terms of exporting goods worldwide in 2022. Its economy heavily relies on exports, with semiconductors being its top export item for a long time. The importance of semiconductors for Korea has increased drastically in recent years, with semiconductor exports accounting for almost 20% of Korea’s total exports in 2021, compared to 10% in 2010. In 2021, Korea’s semiconductor export volume was $127,984 million, followed by petrochemicals ($55,081 million) and autos ($53,456 million) (see Figure 1). Korea’s economic growth is mainly dependent on the performance of the semiconductor industry, which is so significant that Korea is often referred to as “Korea Makes a Living on Semiconductors ( ).”

It is significant to highlight that Korea’s semiconductor export structure has a critical issue: it heavily relies on China. After the normalization of diplomatic relations between Korea and China in the 1990s, Korea strengthened its economic ties with China, making it its largest trading partner, replacing traditional partners like the US and Japan (Kumar, 2015b). In the process, China also became the largest destination for Korea’s semiconductor export. China’s emergence as the most significant consumer of semiconductors in the world (Lee(b), 2022, pp. 108–109) made Korea heavily reliant on China market. As Table 1 shows, in 2021, Korea’s export to China accounted for approximately 60% of semiconductors. China also emerges as Korea’s largest exporting destination for its semiconductor equipment: Korea’s 69% of the equipment for front-end processes, 61% for back-end processes, and 39% of other semiconductor equipment went to China market. Apart from that, China market was also the largest market for Korean semiconductor parts. In sum, Korea became hugely dependent on China market for the success of its semiconductor industry, which is the backbone of the Korean economy.

Korea’s Emerging Export Dilemmas

The expanding battles over techno-hegemony between the US and China have directly affected Korea’s economic security. Indeed, recent actions taken by two great powers have created a semiconductor export dilemma for Korea. As discussed above, under the US-China chip war, the Xi Jinping government has embarked on a self-reliance move for semiconductors and introduced an import substitution strategy. Under this strategy, China also seeks to reduce its import reliance on Korea. Beijing’s action has significantly affected the mindset of Korean policymakers as they came to believe that China is no longer a safe destination for Korea’s semiconductor exports. The actions taken by China are already impacting Korea. China’s self-reliance moves, combined with China’s recent economic slowdown, led to the significant decline of Korea’s semiconductor imports in China in recent months, given that Korea’s total semiconductor exports to China fell 40% in the first quarter of 2023 from a year earlier. In sum, the Xi Jinping government’s self-reliance move and its potential impact on Korea’s economic security has become a serious concern for policy communities in Seoul.

If China’s push for self-reliance is creating an export dilemma for Korea, the US’s strategy to contain China is also leading Korea to reconsider its heavy dependence on the Chinese market. The Biden administration has taken unilateral steps to restrict semiconductor exports to China, not just in a bilateral context but also by urging key allies like Korea, Japan, and the Netherlands to collaborate on containing China’s rise. However, not all partners are on board with this approach, particularly Korea, which relies heavily on the Chinese market for its semiconductor exports. Korea aims to remain neutral in the US-China semiconductor dispute (Bae, 2022). In this context, Seoul’s policy communities are dissatisfied with the United States’ unilateral actions, which have pushed Korea to be part of its strategy to contain China. The Korean side has made numerous efforts to persuade the Biden administration not to involve Korea in its China containment strategy. However, the Biden administration has disappointed Korea on this issue, as they have prioritized containing China and have forced their ally to follow suit. Korea is now developing new plans to maintain its export domination in the global market, assuming that the US-China chip war will be prolonged and that the US will intensify its containment strategy towards China in the future (Gyong & Lee, 2022; Bae, 2022).

Amid the intensifying US-China tech war, two most common policy slogans emerged in Korea: (1) Next China ( ) and (2) Export Diversification ( ). Under these policy slogans, Korea has decided to reduce its export reliance on China by diversifying its market away from China. Although these policy slogans are being used to reduce overall export dependence in China, it is also true for semiconductor exports. It is also significant to highlight that Korea is also not optimistic about a prospect where its traditional security partner, the US, can help Korea to diversify its export under its Next China strategy. More precisely, Korea is searching for new emerging markets amid the US-China tech war. In this context, the Southeast Asian market emerged as one of the potential markets which can support Korea’s Next China and Export Diversification strategies. As the Bank of Korea’s recent report suggests, Korea must reduce its reliance on both China and The US market and expand its export presence in the Southeast Asian market, especially Vietnam, which has the potential to play the role of next China for Korea because of the rise of global IT companies in the country and the increasing production of IT devices (including mobile phone) (Bank of Korea, 2023). The Korean government announced measures to reduce the country’s dependence on China and the US for the information and communication technology exports. These include sending digital export groups to ASEAN countries, creating a specialized agency, and providing loans to promising export in emerging markets (KITA, 2023).

India’s Chips Import Dependence on China and Search for a Reliable Supply Chain

India’s Dependence on China for Semiconductor Imports

India, like Korea, is also facing a trade dilemma with China, albeit differently. Whereas Korea’s China dilemma emerged from its export dependency on China, India’s China dilemma arose from its import dependency on China. It is worth to note that India remarkably improved its ties with China in the post-Cold War era, considering China a key economic partner in reshaping the US-dominated economic order. While other major liberal countries in Indo-pacific, such as the US and Japan, became concerned about the Rise of China in the post-Cold War era and began an early preparation to reduce trade dependence on China, India did not see its huge import dependence on China as a significant threat (Kumar, 2023). As a result, China emerged as the largest trading partner for India. In the process, India also became too dependent on China for importing semiconductors. As Table 2 shows, India was too reliant on China to import semiconductors, equipment, and materials for its semiconductor ecosystem in 2020 compared to the US and Japan. In the last three financial years, chip imports from China have increased by more than 50%, highlighting India’s excessive dependence on China for its chip requirements.

New Delhi’s Search for a Reliable Supply Chain

Until recently, New Delhi did not perceive India’s import dependency on China as a severe threat. However, China’s growing assertiveness toward India under the Xi Jinping regime and the recent India-China border clash have significantly changed India’s perception of China. New Delhi no longer sees China as a friendly economic partner in the long run. It believes that India-China competition will intensify in the future, so India’s import dependency on China directly threatens the country’s economy and security. Yet, it was the COVID-19 pandemic-induced supply chain disruption that provided a turning point in India’s recalculation of import dependence on China. Like other industries, the pandemic has shown how important it is to have a resilient semiconductor supply chain. The shortage of semiconductors has had a significant impact on various sectors of India’s economy. The 2021-22 Economic Survey of India has revealed that the semiconductor shortage has caused several firms in diverse industries to close or reduce production (MoF, 2022).

Against that backdrop, two policy slogans have emerged in India: (1) Supply Chain Resilience and (2) Decoupling from China. Both aim to reduce India’s import dependence on China and diversify its imports to ensure a stable supply chain, by strengthening its trade partnership with like-minded countries, especially its Indo-Pacific partners, the US and Japan. India has taken practical actions to realize its policy goals. After the 2020 Galwan clash, New Delhi introduced various policy measures to decouple from China in trade and investment, including tightening its grip on chip imports from China.¹ India’s introduction of the Chip Import Monitoring System in 2021 is part of this effort. India aims to build a strong partnership for semiconductor supply chain resilience with the US, Japan, and Australia in both bilateral and multilateral frameworks. In this regard, India established a Memorandum of Understanding with the US and a Memorandum of Cooperation with Japan for a semiconductor supply-chain partnership in 2023. New Delhi played a vital role in the formation of the India-Japan-Australia Supply Chain Resilience Initiative in 2021 and pushing to build resilient semiconductor supply chains through the Quadrilateral Security Dialogue among India, the US, Japan, and Australia.

Potential for Korea-India Trade Partnerships

Boosting Korea-India semiconductor trade partnerships will greatly help to realize both countries’ policy goals. Korea is looking to reduce its economic dependence on China. In this process, Korean policymakers are searching for alternative market for semiconductor export. President Yoon, who has announced that ‘The economy is at the center of Korea’s all diplomacy’ is pursuing a ‘sell diplomacy’ to promote Korea’s semiconductor export in like-minded countries. In this context, India’s growing semiconductor demand may provide a suitable and a long-term market for Korea’s semiconductor products. So far, Korea’s export to India accounted for very low, compared to other countries. This is a key area of concern for Korean policy communities, as some key Korean policy reports suggest that Korea must boost its export to India to reduce its over reliance on China (Yang and Kim, 2022).

Boosting Korea’s chip exports to India can aid in achieving the Indo-Pacific liberal democracies’ goal of building a democratic semiconductor alliance. As discussed above, the US has proposed to build the Chip 4 alliance that includes the US, Korea, Japan, and Taiwan to win semiconductor hegemony competition with China (Yoon, 2023). However, Korea has been hesitant to join the Chip 4 initiative, fearing economic retaliation from China and losing its market. In this context, India’s semiconductor market growth should also be considered for the success of the democratic chip alliance in the Indo-Pacific. India’s inclusion in the chip alliance is important due to its market power. Boosting the Korea-India trade partnership will reduce Korea’s reliance on China’s market, which will help materialize the democratic semiconductor supply chain dream in the Indo-Pacific. A strong semiconductor trade partnership between Korea and India can help achieve the objectives of key emerging institutions, such as the Indo-Pacific Economic Framework (IPEF). It is important to note that both countries have joined this framework to secure semiconductor supply chains in the Indo-Pacific region.

Boosting Korea’s semiconductor export to India can help achieve India’s foreign economic policy goal of reducing reliance on the Chinese market. The demand for semiconductors in India is expected to rise, which could increase the country’s reliance on China, causing concern for the future. The Indian government’s current Digital India mission will significantly increase the requirement for semiconductors. Additionally, the market for smartphones, personal computers, servers, and electric vehicles is growing, leading to a significant increase in chip demand in the country. By 2028, India is predicted to require $80 billion worth of semiconductors, which is almost equivalent to the country’s oil import bill at that time. There will also be a significant need for intermediate products in the Indian market. As China exports 96.2% of front-end process equipment, 20.1% of materials, and 23% of other semiconductor equipment (see Table 2), India heavily relies on China to import semiconductor equipment and materials. To produce semiconductor chips, India will need to import many intermediate products from overseas. Until India diversifies its imports, it will continue to rely heavily on China, which could lead to an insecure supply chain. Hence, India should create a robust trade partnership with like-minded countries such as Korea for a trusted and reliable supply chain. Korea, which has been the primary source of China’s semiconductor demand for a long time, is capable enough to meet India’s semiconductor import demand.

Exploring Prospects for Korea-India Semiconductor Production Partnership

In the previous section, we have shown the potential of the trade partnership between Korea and India. In this section, we will explore the potential for a semiconductor production partnership between Korea and India. We will discuss Korea’s search for an alternative production destination, India’s pursuit of semiconductor production, and the prospects for cooperation between the two countries.

Korea’s Struggle with Chip Production in China and Search for Alternative Production Destination

Origins of The Honeymoon Period for Korea-China Chip Production Partnerships

China emerged as Korea’s first major semiconductor production partner. When Korean companies decided to expand semiconductor manufacturing facilities from Korea to overseas destinations, they chose China as their first preference. Table 3 shows, in 1996, Samsung set up a back-end semiconductor manufacturing plant in Suzhou, China. In 2005, SK Hynix set up a joint venture with STMicroelectronics and collaborated with local and center governments of China to build its first front-end memory-manufacturing facility in Wuxi City, China. Since then, SK Hynix has expanded its manufacturing facilities in China and chose China as its leading overseas production destination, opening a back-end process factory in Chongqing and a NAND flash factory in Dalian. The Korean business elite highlighted SK Hynix’s expansion in China as the emergence of a new Korean economic philosophy of “Development together with China ( )” (Maeil Business, 2015). Korea-China semiconductor production cooperation reached a high when Samsung opened the world’s largest NAND flash factory in Xian in 2014. Samsung highlighted the opening of the Xian plant as a symbol of a strong Korea-China tie (Samsung Newroom, 2014). Together, Samsung and SK Hynix invested over $50 billion to establish chip manufacturing plants in China.

The emergence of Korea-China strong semiconductor production cooperation was a result of political as well as economic factors. At the political level, the normalization of Korea-China diplomatic ties in the 1990s, Chinese leadership’s stress on the peaceful economic rise during the Hu Jintao regime (2002–2012), and Korea’s emerging positive perception of China in the 2000s played a crucial role in Korean companies’ entry in China market (Kumar, 2015b). On the economic front of China’s emerging semiconductor market, the Chinese government’s stress on a market economy that includes a warm welcome to foreign companies (including Korean companies) in China also impacted Korean companies’ decision to make China their major production partner (Lee(b), 2022). The period was called a honeymoon period for Korea-China economic ties ( ) and semiconductor cooperation.

Emerging Tension in Korea’s Chip Production in China

The US-China tech war has put an end to the honeymoon period for semiconductor production partnerships between Korea and China. Indeed, Korean companies now face challenges producing in China due to the US-China chip rivalry. I will discuss three such points here. First, as the US has intensified its chip war with China, it has implemented coercive economic measures to prevent China from becoming a semiconductor power. These measures are also being applied to Korea as the US is restricting Korean companies from upgrading their semiconductor manufacturing plants in China by banning the import of critical equipment by Korean companies for their plants in China. Upgrading the manufacturing plant is crucial for their market survival. Due to the absence of upgrading, Korean companies are expected to stop semiconductor production in China in the next 3–4 years (Interview in Seoul, May 2023). Second, there has been a significant shift in Korean companies’ perception of China from a land of economic opportunities to a land of economic risk, especially after the Chinese government’s economic retaliation against Korean companies since 2017 over Korea-China political tension regarding the deployment of the US missile system on Korean land (Kumar, 2018). This is also true for the semiconductor industry. A recent survey by the Korea Institute for Industrial Economics & Trade suggests that many Korean semiconductor, display, and other electronic manufacturers are facing difficulties operating their manufacturing plants in China, with political factors such as Xi Jinping regime’s inward-looking strategy and US-China competition being major reasons for this (KIET, 2022).

Third, China has emerged as a significant competitor and a threat to Korea’s semiconductor-related policy goals, known in Korea as the super-gap strategy ( ). China is attempting to become a semiconductor powerhouse, and Korean companies such as Samsung and SK Hynix are facing concerns related to semiconductor core technology leakages to Chinese companies. This trend is known as tech leakage ( ) in Korea. From 2017 to 2022, the Korean National Intelligence Service detected 53 attempts by foreign companies to obtain semiconductor, display, and electronics technology from Korean companies. Chinese companies were responsible for the majority of these attempts, with 36 in total (Kwon, 2022). As the US tightens control of exporting advanced semiconductor technology to China, Chinese companies are seeking alternatives. Korean companies’ semiconductor materials, parts, and equipment are on their radar due to Korean semiconductor companies’ significant presence in China and Chinese companies’ experience of technological cooperation with Korean companies, including Samsung Electronics and SK Hynix (Interview in Seoul, May 2023).

Korean companies are facing challenges while producing in China, leading them to pause their investment plans in China and explore other production locations. SK Group Chairman Chey Tae-won recently said that Korean companies need to diversify (markets and businesses) away from China if Korea is to maintain industrial competitiveness (Maekyung Securities, 2023). Southeast Asia, particularly Vietnam, has emerged as a highly attractive option that could potentially rival China. Indeed, Vietnam has become a vital economic partner with Korea, with increasing collaboration in the semiconductor industry. Samsung and SK Hynix have redirected their attention from China to Vietnam, with plans to establish semiconductor production facilities similar to those in China. The Korean government has supported this shiftthrough Government-Chaebol-Mid-Sized company collaborations, such as Hana Micro’s entry into Vietnam. Hana Micro, a company specializing in packaging and testing processes for semiconductors, is building two plants in Vietnam in partnership with SK Hynix, with support from Korean Development Bank and Korea Export-Import Bank.

India’s Pursuit for Semiconductor Production and Finding Trusted Production Partners

India’s Quest for Semiconductor Production

In 2021, the Modi administration launched the India Semiconductor Mission (ISM) with the goal of building a semiconductor industry in India and integrating it into the global semiconductor value chain. Indian policymakers have prioritized the development of a capital-intensive semiconductor industry due to several factors. One of the biggest challenges for India’s economic policy has been the growing trade imbalances, particularly with China. This has been worsened by India’s absence in the semiconductor value chains, resulting in a heavy reliance on imported chips for various sectors. Semiconductor imports contribute significantly to India’s trade imbalance, with a 92% increase in the past three years (The Economic Times, 2023). The ISM aims to reduce this reliance on imports and boost self-reliance in this strategic industry (Invest India, 2023). The COVID pandemic-related semiconductor supply chain vulnerability has also influenced India’s leadership to build its own semiconductor industry to secure future chip supplies vital for economic growth. The Indian leadership recognizes that without a robust semiconductor industry, India cannot be a significant player in the fourth industrial revolution where chips will play a leading role. Additionally, the ongoing US-China tech war has created an imperative for Indian policymakers to build this industry. They believe that current geopolitical and geo-economic trends favor New Delhi, as the US and its key allies, such as Japan, want to contain China from becoming a semiconductor power. One of their key strategies is to build a supply chain based on like-minded countries, and Indian policymakers see India as a natural partner for liberal countries that dominate the semiconductor industry. During the Semicon India 2023 conference, PM Modi emphasized the significance of India in building a ‘trusted value chain’ among like-minded democratic countries.

India has made a significant change in its industrial development strategy to achieve its semiconductor dream. Previously guided by neoliberal economic ideology since its economic liberalization in 1991, India’s strategy is now closer to the Korean developmental state model.² There are several reasons to support this argument. First, India has adopted a Korean developmental state-type industrial policy as the government has identified the semiconductor industry as a “strategic” sector to be promoted. Second, the government has decided to promote this industry through developmental state-type government-business collaboration rather than a neoliberal idea of a market economy. The government has provided incentives for the private player based on their performance, such as production and export. In doing so, India has joined the US, Europe, and East Asian countries, which also provide incentives for enhancing semiconductor manufacturing amid intensifying the chip wars.

New Delhi’s Search for Trusted Production Partners

India is making efforts to enhance its engagement and collaboration with other like-minded countries to promote its chip manufacturing industry. A noteworthy progress in this regard is India’s strengthening of its chip cooperation with the US, Japan, and Taiwan. The Modi government has been actively promoting institutional partnerships, particularly with the US and Japan, in recent months. As Table 4 shows, India established a strategic partnership with the US in January 2023 through the Critical and Emerging Technology (iCET) initiative, aiming to fortify resilient semiconductor supply chains. Additionally, the Indian government facilitated institutional collaboration between the India Electronics Semiconductor Association and the US Semiconductor Industry Association by creating a task force to identify both immediate and long-term opportunities for complementary semiconductor ecosystems (Semiconductor Industry Association, 2023). In March 2023, during US Secretary of Commerce Ms. Gina Raimondo’s visit to India, India signed an MoU with the US, forming a technological partnership focused on strengthening semiconductor supply chains. This partnership was further emphasized during the 2023 Modi-Biden summit. India also signed an MoU with the US during US Secretary of Commerce, Ms Gina Raimondo’s India visit in March 2023 and forged a India-US technological partnership for the future that focus of strengthening semiconductor supply chain during the 2023 Modi-Biden submit (The White House, 2023). Recently, there has been notable progress in the relationship between India and Japan with regards to semiconductor institutional collaboration. During a bilateral talk in July 2023 between Japan’s Minister of Economy, Trade and Industry (METI) Yasutoshi Nishimura and his Indian counterpart, an MoU was signed for semiconductor development. The MoU covers various aspects, including design, manufacturing, equipment research, and talent development. Additionally, India’s Ministry of Electronics & Information Technology (MEIT) collaborated with a METI team and the CEO and President of Rapidus Corporation, Atsuyoshi Koike, during the same month. Above all, India has enhanced its partnerships with the US and Japan in the QUAD framework to increase its chances of establishing semiconductor manufacturing. In this regard, India, Japan, the US, and Australia jointly decided to invest in semiconductors to establish a public-private partnership (Nikkei, 2023).

As the Indian government has sought to boost semiconductor partnerships with like-minded countries, there is some visible progress as companies from Japan, the US, and Taiwan have announced significant initiatives to support India’s quest to build a semiconductor ecosystem, including production (see Table 4). Micron Technology’s announcement to create a back-end semiconductor manufacturing plant in Gujarat, India, is the most notable progress in semiconductor manufacturing in India. This outcome is also a direct result of the US-China chip war, as Micron found it challenging to do business in China market after the Chinese government’s economic retaliation for the US semiconductor sanctions to China.

Prospects for Korea-India Cooperation in Semiconductor Production

The ongoing chip rivalry between the US and China has caused a ripple effect on the semiconductor strategies of Korea and India. As a result, there is a huge growing potential for these two nations to collaborate on semiconductor production. This partnership could lead to mutually beneficial outcomes and help them realize their policy goals. India is deeply interested in enhancing Korean companies’ presence in India’s semiconductor market. In this regard, it has been sending what Korean media reported as “love calls ( )” for Korean companies to enter the Indian market for semiconductor production by utilizing government incentives. However, Korean companies are still reluctant to enter India for production purposes.³ The primary reason Korea is reluctant to foster a semiconductor production partnership with India is due to commercial-based calculations related to India’s lack of infrastructure and manufacturing capabilities (Interviews in Seoul, June 2023).

Korea needs to see India beyond the commercial-based calculations. Due to the ongoing US-China tech war, India is a good option for Korean companies seeking an alternative to their manufacturing base in China. India provides a safe long-term semiconductor manufacturing destination for Korea as a part of the emerging US-led democratic semiconductor alliance. This alliance is focused on building an ‘exclusive’ semiconductor ecosystem, including production and technical standardization of semiconductors (Nikkei, 2021), which Korea wants to align with given its deep concern about the US-led technical standardization and the emergence of this exclusive block (Kwon, 2022). In addition, as companies from like-minded countries are building a reliable semiconductor ecosystem in India, Korea can utilize this reliable ecosystem for production purposes. Just as they did in China in the 1990s and 2000s, Korean companies can start production in India in a labor-intensive and low value-added “back-end process (packaging and testing)” by utilizing the Indian government’s incentives which aims to financially support domestic and foreign companies from like-minded countries (Interviews with Indian scholars, June 2023). As the Korean government is looking to support India-related development projects to boost Korea’s presence in India,⁴ supporting back-end semiconductor manufacturing projects in India could be a suitable option. This will also serve Korea’s policy goal to raise Korean Outsourced Semiconductor Assembly and Test (OSAT) companies’ global market shares from the current 6% to 21% by 2023 (ET News, 2022).

India’s growing skilled workforce provides another reason for Korean companies to consider setting up their back-end process manufacturing facilities in India. As discussed above, Korean companies with the help of the Korean government are planning to establish chip manufacturing facilities in Vietnam. However, Korea’s choice of Vietnam as an alternative to China comes with its own set of challenges, such as a shortage of skilled workers. To build the Vietnamese semiconductor industry, tens of thousands of skilled workers are needed, but there are currently only a few thousand integrated circuit and embedded system engineers in the country (Emerics, 2022). The shortage of skilled workers was identified as the biggest obstacle for Korean companies’ expansion in Vietnam during President Yoon’s meeting with Korean companies in Vietnam (MOFA, 2023). Hence, India, which strives to become a semiconductor talent powerhouse in next few years, could be a good option for Korean companies.

After entering the back-end semiconductor manufacturing, Korean companies can increase their semiconductor production presence in the Indian market by making chips for other key sectors that ultimately serve Korea’s economic security interests. In this context, it is essential to highlight two industries. First, Korea can consider making chips for the auto industry. Korean auto companies Hyundai Motor and Kia dominate India, with the second-highest market share (21.7%). They are looking to make India an alternative to China for auto manufacturing (Interview in Seoul, June 2023). In this regard, a reliable chip supply is critical for realizing their goals. During the COVID-19 pandemic, Hyundai Motors and Kia faced difficulties securing India’s local demand due to a shortage of semiconductor chips. India’s new developmental mindset, which demands foreign auto companies, especially Korean companies, to produce and buy locally, also provides a strong reason for Korea to make semiconductor chips for the auto industry in India (Interview in Seoul, July 2023). Second, Korean companies should consider producing defense industry-related chips in India to boost cooperation with India. It is significant that Korea has identified cooperation for the defense industry as one of the most important sectors where India and Korea can collaborate (Interview in Seoul, July 2023). India aims to build a self-reliant defense manufacturing industry and requires domestically produced chips to support this goal. By making chips for India’s defense industry, Korea can participate in India’s quest and enhance its prospects for exporting defense items to India, which is identified as one of the top 10 promising countries for Korean defense exports (KIET, 2021). Any meaningful entry by Korean companies in India’s semiconductor manufacturing will significantly enhance Korean investment’s value for India, which in turn will boost India-Korea manufacturing partnerships.

Navigating Prospects for Semiconductor Workforce Collaboration between Korea-India

In the previous sections we discussed Korea and India’s collaboration on semiconductor trade and production. Now, we will explore opportunities for semiconductor workforce collaboration. We will discuss Korea’s workforce challenges amid emerging semiconductor talent war, India’s quest for becoming semiconductor talent powerhouse, and prospects for Korea-India skilled workforce collaboration.

Korea’s Workforce Challenges Amid Emerging Semiconductor Talent War

The semiconductor talent war is a crucial aspect of the emerging chip war, alongside trade and manufacturing. Currently, the global semiconductor industry is experiencing severe shortages of chip talent. According to a report by Deloitte, the US semiconductor industry may face a shortage of approximately 90,000 chip talents in the coming years (Deloitte, 2022). Similarly, East Asian semiconductor powerhouses are also facing significant chip talent shortages. Therefore, those who succeed in securing sufficient chip talent are predicted to win the chip war. Consequently, the US and China are fiercely competing to secure semiconductor workforces, while Korea is also grappling with severe workforce challenges amid the emerging semiconductor talent war.

It is important to mention that Korea’s emergence as a manufacturing giant was due to a low-cost and skilled workforce, which also fostered its semiconductor industry. However, the country has recently faced severe labor shortages in this sector, threatening its position as a high-tech manufacturing powerhouse. According to reports, the Korean semiconductor industry requires 1,600 workers annually, but only 650 students graduate from Korean universities with degrees related to the industry. Additionally, only about 150 individuals with master’s or doctoral degrees graduate in the semiconductor industry field, leaving Korean companies with limited hiring options. As a result, Korean conglomerates, known as Chaebol, are struggling to find qualified workers, despite being willing to pay more (Chosun Ilbo, 2022). This has led to the suspension of many of their current business plans. For example, Samsung wanted to run its domestic facilities 24h to meet global chip demand, but was unable to do so due to the lack of available workforce. Moreover, there is tension between chaebols and SMEs due to the lack of skilled workforce in the Korean semiconductor industry. SMEs have difficulty finding workers because youths prefer chaebols for the higher salary and experienced engineers leave SMEs for chaebols due to market power manipulation (Interviews in Seoul, April 2023).

The future scenario is more concerning for Korea. The competition for the semiconductor industry is intensifying, and traditional dominant players like the US, Europe, and Japan are building their own domestic semiconductor manufacturing bases. In response, Korea launched a grand plan in March 2023 to maintain its supremacy in this industry by announcing the building of the world’s largest semiconductor cluster in Yongin, located in the Seoul metropolitan area. Implementing this semiconductor cluster is a top priority for Korea’s government and business communities, as they believe it is crucial for the country’s economic security and national strategic interest. However, Korea can only achieve its tasks with sufficient human resources. According to SK Hynix Vice Chairman Park Jung-ho, there will be a total shortage of 54,000 people in 2031 (Yonhap News Agency, 2023). The Korean government and Chaebols are collaborating to nurture domestic talent for the semiconductor industry by enhancing semiconductor-related departments at Korean universities. Nevertheless, it is unlikely that Korea will produce sufficient domestic workforce to meet its demand. Partly because Korean youths are not interested in studying engineering; instead, there is a growing craze among Korean youths to study medicine, a phenomenon known in Korea as medical school concentration ( ). Partly because of the significant decline of the working-age population in Korea in the next few years, resulting from a rapidly aging society and ultra-low birth rate.

As Korea realized it could not meet high-skilled workfare demand from domestic sources, it is changing its mindset regarding attracting foreign talent.⁵ Now Korea eagerly wants to attract foreign talent for the high-tech industry. In this context, Korea has actively participated in the chip talent war in East Asia. East Asian semiconductor powerhouses are concerned about workforce shortage in the chip industry, and hence they are actively introducing various policies to lure high-skilled foreign talent (see Figure 2). The Korean government has also enhanced its activism by competing with other East Asian countries to attract foreign talent. In December 2022, the Ministry of Justice (MoJ) introduced a new visa, namely E-7-S, for foreign talent to strengthen competitiveness in high-tech industries and tackle labor shortages in key strategic sectors, including semiconductors (MoJ, 2022). In January 2023, the MoJ implemented a fast-track system for outstanding international students in science and technology to easily obtain permanent residency and citizenship, enabling them to settle in Korea and effectively address labor shortages in SMEs (MoE, 2023a, 2023b). In another remarkable move, the Ministry of Education launched an initiative in August 2023, namely the ‘Study Korea 300K Project,’ to enhance the number of foreign students from 167,000 in 2022 to 300,000 by 2027. The primary aim of this initiative is to preemptively secure skilled foreign workers for high-tech industries and boost the global competitiveness of Korea (MoE, 2023b).

India’s Quest for Becoming “Semiconductor Talent Powerhouse”

India aims to become a leading semiconductor power, and to achieve this goal, it recognizes the need to develop a strong semiconductor talent pool. This will not only cater to India’s rapidly growing domestic demand but also meet the increasing global demand for semiconductor talent. The semiconductor industry is highly competitive and capital-intensive, and India has realized that its competitive advantage lies in its pool of highly skilled human resources. With around 20% of the world’s semiconductor design engineers, India is already a significant supplier of workforce to this industry. Additionally, many science and engineering students from Indian universities work for major global semiconductor companies. Moreover, India hosts research and development centers of almost one-fourth of the world’s top 25 semiconductor design companies. To further strengthen its position as a semiconductor talent powerhouse, the Indian government has rolled out several initiatives. Notably, the Chips to Startup Programme aims to train 85,000 high-quality engineers in the areas of Very Large Scale Integration and Embedded System Design over five years (PIB, 2022).

Equally significant, India is adopting a new strategy to develop its workforce amidst a talent war in the global semiconductor industry. The policymakers in India are now emphasizing that their workforce development is not only meant to fulfill domestic requirements but also to cater to the world’s needs. According to India’s telecom minister Rajeev Chandrasekhar, India will soon have a talent pool of 85,000 individuals who will create innovative designs and solutions for the country and the rest of the world (Business Standard, 2023). India is developing strong relationships with like-minded countries to achieve this goal. The India-US emerging semiconductor partnership is one such example, which mainly focuses on semiconductor workforce development. During the 2023 Modi-Biden summit, it was announced that US company Lam Research will train 60,000 Indian engineers through its ‘Semiverse Solution’ to accelerate India’s semiconductor education and workforce development goals (The White House, 2023).

Possibilities of Korea-India Skilled Workforce Collaboration

Collaboration between Korea and India in developing skilled workforces could prove to be highly fruitful during the ongoing semiconductor talent war. The Korean semiconductor industry can offer employment opportunities to Indian graduates from universities in India or abroad. In recent years, there has been a noticeable increase in the number of Indian university-graduated engineers working in Korea, as well as a significant rise in the number of Indian post-doctoral researchers in engineering and science who have come to work in Korean labs. In fact, most engineering and science labs in Korea are now populated by Indian and other South Asian researchers. However, the issue is that most Indian university-graduated engineers or post-doctoral researchers leave Korea after working for just two or three years. To find a long-term solution, inviting Indian students to study at Korean universities could help address Korea’s skilled workforce shortage. Indian students can also play a crucial role in fulfilling Korea’s aim of inviting more international students in engineering and science fields.

Enhancing Indian students in Korea will also serve Korea’s policy goals to diversify international students in Korea. As Figure 3 shows, Currently, Chinese students make up a large proportion of Korea’s total number of international students. Korea wants to change this student equation. India, which recently surpassed China in sending students to liberal countries like the US and the UK, can help Korea realize its student diversification objective and meet skilled workforce shortages. After graduating from Korean universities, Indian students can be employed by Korean firms to help fill domestic workforce shortages. Indian students can also be deployed to support Korean companies’ global operations, such as Samsung’s future US plants, which are facing labor shortages. Additionally, Indian students can assist Korean companies in entering the Indian market.

Collaboration between Korea and India can also significantly enhance India’s semiconductor ecosystem with regards to chip workforce development. As mentioned earlier, American companies are actively involved in developing semiconductor talent in India and Korea can follow a similar path. Samsung is already educating Indian youth about the semiconductor industry, but more collaboration between the government and businesses is needed, with a particular focus on like-minded countries. A trilateral cooperation between India, Korea, and the US for human resource development is critical to address workforce shortages. Engineers trained under this cooperation can work for US and Korean companies, and this is particularly important for Korea’s semiconductor manufacturing plant in the US, which is likely to face labor shortages.

Conclusion

This paper presents an in-depth analysis of the possibilities for semiconductor cooperation between India and Korea in light of the ongoing chip war between China and the US. The study reveals that the technology conflict between these two superpowers has opened up new avenues for Korea and India to work together and foster semiconductor cooperation. The paper highlights three areas where Korea and India could collaborate: semiconductor trade partnerships, semiconductor production partnerships, and semiconductor workforce collaboration. This research is the first of its kind to explore India-Korea technological collaboration from the perspective of the ongoing US-China competition for technological dominance and its impact. Since this study examines this complex issue from the International Political Economy (IPE) viewpoint, there may be certain limitations. Future research can build upon the arguments presented in this study and delve deeper into finding specific areas where India and Korea can collaborate.

Acknowledgment

This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2017S1A6A3A02079749).

Notes