by Derryl Hafis Prambudi – Semester 6; Binusian 2024

International Business Student – Binus Business School International Undergraduate Program


The current competition between the United States and China, two global superpowers, has generated significant interest in semiconductors due to their crucial role as the primary components for developing supercomputers, electric devices, and military hardware (Petrovsky, 2022). China’s rapid advancement in achieving self-sufficiency in semiconductors and becoming the largest exporter of these components has prompted the United States to take swift measures to safeguard its national security and interests.

In response to China’s rapid progress in semiconductor self-reliance, the United States Department of Commerce has implemented new restrictions on the sale of semiconductor technologies to China, affecting products utilized in the manufacture of supercomputers and semiconductors. Furthermore, in December of 2021, the Biden administration expanded these restrictions to include 36 additional Chinese chip makers, including the world’s largest contract chip maker, Yangtze Memory Technologies Corporation (YMTC), from accessing US chip technology (Aggarwal, 2022). As a consequence, several companies, such as Apple, which had been collaborating with YMTC to develop flash memory for the iPhone 14, as well as Nvidia and AMD, which do business with Chinese firms and produce GPUs, have been impacted by the restrictions (Aggarwal, 2022).

China has responded to the United States’ new export control measures by initiating a lawsuit against the US at the World Trade Organization (WTO), alleging that the US authorities’ broad interpretation of measures to protect national security employs unfair methods against overseas enterprises and amounts to “technological intimidation” (Petrovsky, 2022). Additionally, numerous non-Chinese companies have already started to relocate their manufacturing capacity from China, with Taiwan Semiconductor Manufacturing Company (TSMC) setting up production facilities in the United States and Europe, and Foxconn, Apple’s largest supplier, rapidly expanding its iPhone production in India, although this could take time and disrupt the global supply chain (Aggarwal, 2022). According to Pareekh Jain, CEO of Pareekh Consulting, the semiconductor sanctions against China will encourage more investment in the manufacturing of electronic devices such as phones, cars, and telecom equipment, outside China, including India, Vietnam, and other countries (Aggarwal, 2022).


So how is this problem going to affect Indonesia? What are the potential benefits and opportunities for Indonesia’s economy?


Indonesia’s economy heavily relies on the global semiconductor supply chain, as most of the semiconductor components used in multiple industries, including electronic devices and automotive, particularly in the newly built electric vehicles (EV) industry, are still imported from outside Indonesia (PINTERPOLITIK TV, 2021; Kemenperin, 2022). The manufacturing industry plays a crucial role in Indonesia’s economy, and it was the largest contributor to the country’s 7.07% economic growth in the second quarter of 2021, growing by 6.91%, despite the pressure of the COVID-19 pandemic. According to the Ministry of Industry, in the second quarter of 2021, the manufacturing sector alone provided 17.34% of the country’s total GDP (BKPM, n.d.). Therefore, a disruption in the global semiconductor supply chain could destabilize the rapid economic growth of the country and hinder the government’s push to build an ecosystem for the EV industry. However, this momentum should be used by the Indonesian government to attract investors to establish chip or semiconductor manufacturing in the country, as the semiconductor industry could significantly boost the economy and help Indonesia escape from the middle-income trap. Furthermore, being self-reliant in semiconductors would guarantee national security, particularly in the manufacturing of military hardware and health-related machinery, and enable the export of advanced processed goods, adding value to products, instead of relying on exporting raw materials and cheap products.


From a political perspective, the Indonesian Ministry of Industry is strongly committed to creating an ecosystem for the semiconductor industry in the country, with plans to establish a semiconductor design center in Bandung, West Java, and involving universities and academics in the scheme to encourage innovation and fresh ideas in R&D (Kemenperin, 2022). However, the Minister of Industry has warned that achieving the target of the import substitution program will require government support in the form of policies and facilities, both fiscal and non-fiscal. With demand for chips in Indonesia rising but local chip supply not being able to meet the demand, providing incentives for investment is crucial in encouraging investment in the semiconductor industry (, 2021).

From an economic standpoint, the Ministry of Industry aims to enhance the semiconductor industry in Indonesia by investing in its upstream, intermediate, and downstream sectors. However, this plan entails a significant amount of capital. For instance, the intermediate upstream industry, such as MG-Si with a capacity of 32 thousand metric tons per year, requires USD 300 million of investment. The polysilicon industry with a capacity of 6,500 metric tons per year necessitates USD 373 million, while the monocrystalline ingot and silicon wafer industries require an investment of USD 85 million. According to the 2019 Competitive Industrial Performance (CIP) Index ranking, Indonesia ranks 38th out of 150 countries, which is an improvement from its previous position of 39th in 2018, based on the 2020 Industrial Development Report by the United Nations Industrial Development Organization (UNIDO) (Kemenperin, 2020). This success has propelled Indonesia into the Upper Middle Quintile category, and it now holds a higher rank than India, which is at the 39th level, the Philippines, which is ranked 41st, and Vietnam, which is ranked 43rd (Kemenperin, 2020). The CIP index measures a country’s ability to manufacture and export goods competitively, indicating the maturity of the country’s industry. A high level of competitiveness in manufactured goods implies that the goods produced and exported are technologically advanced and add value to the products. The improvement in the CIP index suggests that Indonesia is on the right track to enhance its capacity to produce and export relatively technologically advanced, specialized goods, including semiconductors (Kemenperin, 2020).

Notwithstanding Indonesia’s efforts, Vietnam has recently attracted significant foreign investment from major multinational companies like Samsung and Intel. Samsung, for instance, has committed to investing US$920 million into its factory in the northern province of Thai Nguyen, with plans to commence semiconductor production in July 2023, while Intel has increased its chip investment in Vietnam by almost 50% in 2021 (Dewi, 2022). In addition, Vietnam’s total chip production has the potential to reach a value of US$1.65 billion by 2025, according to a report by US market research firm Technavio (Dewi, 2022). In the event that Indonesia fails to attract investors, Vietnam could surpass Indonesia in semiconductor manufacturing and lead the way in developing innovative new technologies.


Regarding the social aspect, the Ministry of Industry proposes enhancing the quality of human resources to establish a conducive ecosystem for the Indonesian semiconductor industry, which is crucial to promoting innovation and R&D, thus generating a competitive edge (Kemenperin, 2022). However, Indonesia’s human resource quality lags behind neighboring ASEAN countries such as Malaysia and Vietnam. According to BPS data, individuals who have never attended or have not finished elementary school and elementary school graduates constitute 38,00% of Indonesia’s workforce (February 2022) (Kemnaker, 2022). A comparison of the global human capital index 2017 of ASEAN countries shows that Indonesia ranks 65th out of 130 countries, while Vietnam is placed 64th, Malaysia ranks 33rd, Singapore ranks 11th, the Philippines ranks 50th, Brunei ranks 56th, and Thailand ranks 40th (Kemendagri, 2019).


Regarding Indonesia’s technological aspect, it appears that the country is falling behind in terms of semiconductor manufacturing and innovation compared to other ASEAN countries. Malaysia has already developed its semiconductor designs, whereas Indonesia lacks its own semiconductor design capabilities (Kemenperin, 2022). Similarly, Vietnam has made strides in semiconductor chip manufacturing, with FPT Semiconductor, a subsidiary of a leading technology company, launching its first line of semiconductor chips used in medical devices. In contrast, Indonesia has yet to establish an industry for processing silica into silicon wafers, a crucial component in the production of chips and microchips (Kemenperin, 2022).


From a legal perspective, Indonesia’s semiconductor industry faces challenges in attracting foreign investment due to concerns about the protection of Intellectual Property Rights (IPR), particularly among investors from the United States (Fauzan, 2022). This reluctance by American companies is warranted, as Indonesia is not viewed as being supportive of IPR. According to, Indonesia ranks 51st in the 2022 IP index ranking, with Vietnam at 42nd, Malaysia at 27th, Thailand at 47th, and the Philippines at 37th (U.S. Chamber of Commerce, 2022). This may make it difficult for Indonesia to attract foreign investors to establish manufacturing facilities within the country.


What are some of the best solutions for Indonesia to utilize the momentum to improve its semiconductor industry?


Firstly, it is imperative for the Indonesian government to prioritize the development of human resources in order to enhance the research and development (R&D) process within the semiconductor industry. This is primarily due to the fact that the success of innovation and creativity is highly reliant on the quality of human resources. As a part of this initiative, the government has taken steps towards revitalizing vocational education and training, as evidenced by Presidential Decree Number 68 of 2022. This decree specifically governs the Ministry of Manpower’s preparation of a Job Market Information System, which aims to reduce educational disparities and improve the overall quality of national human resources.


Secondly, Indonesia must strengthen its Intellectual Property Rights (IPR) regulations in order to establish an environment conducive to innovation, especially within the semiconductor industry, which is considered a sensitive area due to its connection to national security. In order to effectively prevent the occurrence of piracy and counterfeit products, law enforcers must ensure that IP laws are strictly enforced.


Thirdly, the Indonesian government should increase its investment in the local semiconductor industry to safeguard national security. Semiconductors are crucial components not only for the economy and industry but also for military hardware and supercomputers used for technological development. Over-reliance on imported semiconductors leaves the country vulnerable to potential weaponization by foreign nations.


In conclusion, the government is cognizant of the current situation and recognizes the potential opportunities that could be gained by the Indonesian economy. However, Indonesia still lags behind other ASEAN countries in terms of human resources, IPR regulations, and R&D activities, which are critical aspects in building a strong technological-based industry. The government must address these issues to avoid the country from falling into the middle-income trap.


Acknowledgement: Mr. Deryl Hafis Prambudi is an International Business student at Binus Business School, International Undergraduate Program, who has taken Contemporary Business in Indonesia class by Dr. Marko S Hermawan. He achieved exemplary grades in this class and is entitled to publish his assignment in this website.




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