Why Asia Remains the Center of the Global Semiconductor Industry

Four East Asian economies dominate the global semiconductor industry. Taiwan, South Korea, Japan and China account for around three quarters of global semiconductor wafer production capacity. According to an OECD study published in December 2025, Asia as a whole represents more than 80 percent of worldwide capacity.

This concentration is driving strong demand for wafer fabrication equipment. The industry association Semiconductor Equipment and Materials International (SEMI) expects the global semiconductor equipment market alone to grow from US$117 billion in 2025 to US$220 billion by 2028. The association forecasts an additional US$23.5 billion market for testing equipment and US$10 billion for packaging equipment. The vast majority of this demand is expected to come from Asia.

The AI boom is making capacity expansion even more urgent. According to a study by the Semiconductor Industry Association (SIA) and Deloitte, governments and companies worldwide plan to invest more than US$4 trillion in AI data center infrastructure by 2028. New chip fabrication plants, packaging facilities and supplier operations are creating business opportunities for German providers of materials, equipment, automation solutions, infrastructure and technical services.

Country Analyses: Strategies and Opportunities for German Companies

German companies are already firmly integrated into Asian semiconductor ecosystems. Examples include Infineon, Siltronic and Rohde & Schwarz in Singapore; Merck, BASF, Zeiss and Trumpf in South Korea and Taiwan; Infineon’s collaborations in Vietnam; Bosch’s activities in India. There ar also research partnerships between Fraunhofer institutes and Asian research organizations.

This Germany Trade & Invest analysis examines how individual countries are supporting their semiconductor industries, which clusters and technologies they’re developing, and where concrete opportunities exist for German companies.

The Asian countries are of enormous importance to global semiconductor value chains. As long as production doesn't become overly concentrated in a single country, a diversified backend manufacturing footprint across Asia in itself poses no geopolitical risk for globally active semiconductor companies. This is particularly true for integrated device manufacturers, whose business models are based on controlling all key production stages, from research and development through design and manufacturing to distribution.
 

Sven Baumann, Microelectronics and Sensor Technology Expert at German Electronics Association ZVEI

Taiwan: The World’s Most Comprehensive Semiconductor Ecosystem

Taiwan covers almost the entire semiconductor value chain. The Taiwanese government has been supporting the semiconductor industry since the 1970s. The country’s key strengths lie in semiconductor foundry services and advanced packaging and integration technologies.

With TSMC as the world’s leading foundry and a strong position in outsourced packaging and testing services, Taiwan is the primary production location for the most advanced logic chips. It accounts for approximately 90 percent of global production of leading-edge logic chips, which are critical for AI applications as well as a wide range of other semiconductor products. At the same time, Taiwanese companies are investing heavily in chiplets, 3D integration and other next-generation technologies to maintain their technological leadership.

South Korea: The Global Leader in Memory Chips

South Korea focuses on a different segment of the industry: memory semiconductors. The market for high-bandwidth memory (HBM), which is benefiting significantly from AI-related demand, is dominated by industry giants Samsung Electronics and SK Hynix.

While South Korean companies occupy a leading position in memory chips, they remain less competitive in foundry services and fabless semiconductor design. To address this, major corporations are investing heavily in large-scale cluster projects to expand manufacturing capacity. Under the “K Semiconductor Strategy”, the government has announced long-term industry investments of up to US$500 billion. Companies are also expanding packaging and testing facilities and benefit from tax incentives for investments in research and equipment.

Japan: Focusing on High-Value Inputs

Japanese companies hold strong positions in semiconductor manufacturing equipment, specialty chemicals, wafers, image sensors, microcontrollers and power semiconductors.

The government is seeking to attract advanced manufacturing facilities through extensive support programs while also promoting research in future technologies such as chiplets and optical semiconductors. Investments by TSMC, Rapidus and Micron are intended to help restore Japan’s position among the world’s leading semiconductor manufacturing locations.

China: The Largest Market and a Rising Semiconductor Producer

Strong domestic demand makes China the world’s largest semiconductor market. At the same time, Chinese foundries are investing aggressively in new production capacity to close supply gaps. China’s share of global wafer production increased from just 2 percent in 2000 to 17 percent in 2020 and is expected to reach 23 percent by 2030.

Chinese manufacturers are already highly competitive in mature-node semiconductor production processes. The country’s industrial clusters are also well positioned in semiconductor packaging and testing, printed circuit boards and, increasingly, semiconductor equipment manufacturing.

However, technological constraints remain in the production of the most advanced logic chips and in key enabling technologies such as extreme ultraviolet (EUV) lithography and semiconductor design software. Industrial policy therefore focuses on overcoming these bottlenecks and localizing strategic technologies. Through the state-backed “Big Fund” and regional support programs, companies receive substantial financial assistance for semiconductor manufacturing and for building domestic capabilities in equipment, materials and electronic design automation (EDA) software.

Southeast Asia and India Expand Their Semiconductor Industries

Within Southeast Asia, complementary semiconductor hubs are emerging. Singapore has established itself as a highly advanced location for manufacturing, research and semiconductor equipment. The city-state’s semiconductor industry covers large parts of the value chain, operates significant mature-node wafer production capacity, benefits from a strong research environment and plays an important role in advanced packaging and semiconductor equipment.

Malaysia has also become a major location for semiconductor manufacturers, particularly from the United States and Europe. Its main strength lies in the downstream segments of assembly, testing and packaging. Penang, in northern Malaysia, has developed into a major hub for outsourced semiconductor assembly and test (OSAT) operations. Around these facilities, a dense ecosystem of suppliers, equipment providers and service companies has emerged. At the same time, Malaysia aims to attract higher value-added activities such as advanced packaging, wafer fabrication and chip design.

Thailand currently serves mainly as a backend manufacturing location. The industry focuses on assembly, packaging and testing, as well as the production of mature semiconductor segments such as discrete and analogue devices. Through new programs and a national roadmap, investment promotion agencies are seeking to attract higher value-added stages of the semiconductor value chain, particularly in sensors, photonics and automotive applications.

Two New Players in Asia

Vietnam is emerging as one of Southeast Asia’s rising semiconductor locations. The country is benefiting from many companies’ China-plus-one strategies and is beginning to attract investments in chip design, packaging and testing. International companies are expanding their presence, while the government is pursuing ambitious goals in workforce development and the creation of a domestic semiconductor ecosystem.

India is already a major center for semiconductor research and design. The country benefits from a large pool of engineering talent, and the government’s Semicon India program aims to attract additional investments in manufacturing and ATMP (Assembly, Testing, Marking and Packaging). The goal is to establish a broader semiconductor ecosystem with strong local value creation while meeting growing domestic demand for semiconductors.

Geopolitical Tensions, Export Controls and the Risk of Overcapacity

The ambitious expansion plans being pursued across Asia face significant challenges. Modern semiconductor fabrication plants require investments of between US$10 billion and US$30 billion. New entrants often struggle to finance such projects, while public subsidies covering 20 to 40 percent of costs can place considerable strain on smaller government budgets.

Geopolitical tensions and export controls also complicate long-term planning. In addition, the extensive capacity expansion programs are likely to intensify competition within the semiconductor industry. Certain market segments and technology areas could eventually face the risk of overcapacity.
Companies also report persistent shortages of skilled labor, as the semiconductor industry competes with other sectors for qualified engineers and technicians. Furthermore, semiconductor manufacturing requires reliable access to electricity and water, both of which remain challenging for many locations.

Governments Have Different Strategic Priorities for Support

Governments across all major Asian semiconductor locations support the industry through extensive incentive programs, tax benefits, research initiatives and workforce development measures. While active industrial policy is a common feature, each country pursues its own strategic priorities.

The countries examined rely heavily on cluster development to concentrate investment, talent, research capabilities and supplier networks. Three distinct models can be identified:

1. Mature innovation clusters with deep industrial capabilities, such as those found in Taiwan, South Korea and Japan.
2. Specialised supply chain clusters in Southeast Asia that focus on particular stages of the value chain.
3. Catch-up cluster strategies in countries such as India and Vietnam.

Opportunities for German Suppliers

The current expansion phase is creating attractive partnership opportunities and new supply prospects for German companies. In Taiwan, South Korea and Japan, demand is centered on precision technologies, advanced materials, manufacturing equipment, automation solutions and research partnerships.

In Malaysia, Vietnam, Singapore and India, opportunities exist in equipment supply, services, infrastructure development, training and the creation of local supply chains. China remains a large and important market, although it is increasingly shaped by export controls, localization requirements and geopolitical risks.

As new production facilities require reliable technical support, maintenance services, engineering expertise and local service capabilities are becoming increasingly important.