0x03 Crafting an Agenda for the Quad Collaboration on Semiconductors

3 Ideas Quad Countries Should Pursue to Build a Resilient Semiconductor Supply Chain

(This is a draft of an article that appeared first in the Times of India on May 24, 2022).

Authors: Pranay Kotasthane, Glenn Downey, Stephen Ezell

Japan hosts the next Quad Leaders’ Summit meeting today. One agenda item will be to announce a concrete action plan under the Semiconductor Supply Chain Initiative, launched by the leaders of the four countries in their last meeting in September 2021. The goal of the initiative is to strengthen the global semiconductor supply chain’s productive capacity and resilience.

Through this initiative, the Quad officially recognises that the semiconductor supply chain has geo-security consequences. The Semiconductor Industry Association—an industry body in the US—estimates that a typical semiconductor production process spans 4+ countries, 3+ trips around the globe, 25000 miles and 12 days of travel. Given the hyper-global nature of this supply chain, no one country can become fully self-sufficient. For building a reliable, secure semiconductor supply chain, plurilateral partnerships are a necessity and not a choice.

And there’s a great opportunity to leverage the unique capabilities of Quad members to advance semiconductor innovation, enhance supply chain security and resiliency, and reduce dependency on adversaries, both in terms of supply of inputs and final-market demand. The U.S. is the undisputed leader in semiconductor design and has a substantial presence in semiconductor manufacturing. Japan is a powerhouse in specialized semiconductor manufacturing materials. India has notable strength in semiconductor design. Australia has enviable material endowments and niche technology industries relying on rare earth elements, battery technology, and artificial intelligence (AI).

For this reason alone, a Quad Semiconductor Supply Chain initiative has a lot of promise. The last meeting ended intending to “map capacity, identify vulnerabilities, and bolster supply-chain security for semiconductors and their vital components”. For the summit which begins today in Tokyo, we suggest three ways to further advance the Semiconductor Supply Chain initiative:

One, build a Quad prototyping semiconductor foundry. Much of the cutting-edge semiconductor design work entails novel application-specific semiconductors such as for AI, high-performance computing, graphics, or communications, often from start-up innovators. These firms need access to prototyping facilities to test their new designs before starting high-volume production. A joint R&D fab working on next-generation prototypes for advanced manufacturing would be a tangible demonstration of commitment from Quad members. Technology sharing—via prototyping and roadmaps—would meaningfully advance trusted partner relationships. Each Quad country would contribute its relative GDP share to this new fab's overall cost and provide professional and engineering staff on a proportional basis. Rather than the cost of building four different fabs in each country, there's a real opportunity to consolidate the learnings and inputs from all four countries.

Two, create Centers of Excellence & Training in Quad countries. To gain an advantage in the race to develop the next generation of semiconductors, Quad countries could sponsor Centers of Excellence (CoE) in each country focusing on areas of immediate interest. For example, Australia could host the CoE for new materials in electronics; Japan could host the CoE for silicon and semiconductor manufacturing equipment, and the United States and India could host CoEs on fabless design architectures. While the CoEs would be physically based in the respective countries, the training cohort would draw from across all the Quad countries. In many ways, this is loosely occurring in university labs around the world now, but by happen-stance, without any structured benefit to alliance partners. The Quad can bring a strategic focus to training in directed areas.

And three, create a Quad go-to-market program. Typically, international corporate and government joint development efforts are kept to the “pre-competitive” or R&D stage only, but that needs to change in at least one significant respect. In joint developments, commercial entities each pick up, or license, the resulting shared intellectual property from the R&D phase, incorporate it into their own proprietary systems and services, and then competitively face off against each other in the open market for customers. However, with modern digital applications enabled by semiconductors, such as smart city infrastructure, IoT networks, and 5G/6G communication systems having real geostrategic significance, there’s an opportunity to go further and help enterprises from Quad countries better compete in international markets. For instance, Quad members can coordinate on export credit offerings, development finance provision, and technical and standards support, which would help them better compete against China-sponsored Belt and Road initiatives.

High-tech supply chains today require allied partnerships. A nucleus for such a partnership has already been built with the Quad framework. Once off the ground, the Quad can expand this partnership to involve other countries like Taiwan, South Korea, and Canada. Today’s Quad Summit meeting is too good an opportunity to miss.

Pranay Kotasthane is deputy director of the Takshashila Institution, Bengaluru, India. Glenn Downey is executive director of The Maltby Group, based in Newcastle, Australia. Stephen Ezell is vice president of global innovation policy at Information Technology and Innovation Foundation (ITIF), Washington, DC, US.