Europe and the U.S. are Racing into an Electronics Cul-de-sac
by Chris Mitchell, IPC vice president, global government relations
The latest EU Competitiveness Report, authored by former European Central Bank President Mario Draghi and released this month, is a compelling call to action that should serve as a framework for policy action in Brussels and capitals across Europe.
However, it perpetuates the regrettable and shortsighted practice of overlooking the wider electronics industrial ecosystem that supports resilience, innovation, and security.
In much the same way that people go to automotive dealers to buy cars and not just engines, people go to stores to buy smartphones, not semiconductor chips. Placing the most sophisticated chips in the palm of a customer is of no value because those chips do not offer functionality by themselves. The functionality is created when chips are placed with other components on printed circuit boards and embedded in larger systems. The printed circuit boards and the process of assembling electronics is highly sophisticated and growing more complex as semiconductor chips become more advanced.
It's perplexing, then, that government leaders in Europe and the United States give so little consideration to the broader electronics manufacturing ecosystem. Consider this: the Draghi Report references “semiconductors” and “chips” 115 times. It references “electronics” only 21 times and only in the broadest terms. It makes no mention of “printed circuit boards” or “electronic assembly.” Europe’s strategy regrettably seems to be building more sophisticated chips and sending them elsewhere for assembly into end systems. Again, it’s like building the best engines without the ability to place them in cars.
Implementing a “silicon to systems” approach is a serious, urgent matter. Europe has set ambitious goals for the region’s defense industrial base and the digital and green transitions, for which an innovative and robust electronics manufacturing industry is imperative. Moreover, the European Commission has also set an ambitious goal for regional chip fabrication, aiming to reach 20% of global production by 2030. During this same period, unless an “ecosystem” approach is adopted, Europe is likely to lose its alarmingly anemic market share in printed circuit board fabrication, electronics assembly, and semiconductor advanced packaging.
Given the extraordinary investments being made in the semiconductor industry, ignoring the health of the overall electronics manufacturing ecosystem is shortsighted and counterproductive. The misalignment reflects a fundamentally flawed understanding of the electronics industry and the real long-term drivers for innovation and industrial resiliency.
You only need to look abroad to understand the value of industrial ecosystems. The remarkable growth of electronics manufacturing in China can’t be reduced to a single factor, but China’s embrace of manufacturing ecosystems is a tremendous advantage. The country is continuing to develop advanced domestic capabilities in PCB fabrication and electronic assembly, in addition to chips, as a way to grow their market share across multiple strategic sectors of the global economy.
The U.S. is likewise investing big in just one segment of the electronics industry while giving short shrift to the broader industry that’s responsible for building actual systems with functionality. Just this month, the U.S. Department of Commerce held a major Supply Chain Summit during which semiconductors were highlighted repeatedly but printed circuit boards and assemblies were mentioned in passing by a private sector panelist. U.S. officials have said the focus on semiconductors is a matter of setting priorities. But ignoring the weak foundation upon which they are trying to build future innovation suggests they are overwhelmed by the task and unfamiliar with an industry that is critical to just about every key policy goal. They have donned blinders not because it is strategic, but because the landscape is too broad, too multifaceted, and “too technical.”
Make no mistake: the public-private investments occurring in the semiconductor industry are vitally necessary. But greater strength in semiconductor manufacturing offers Europe and the United States a brighter future only if the strategy opens up wide avenues to innovation and industrial growth. As it is, Europe and the U.S. are racing into a cul de sac unless they adopt a silicon to systems strategy.
The electronics industrial ecosystems in Europe and the U.S. are in a weakened state, but there are glimmers of change. In Europe, DG GROW has taken the initiative to work with stakeholders to clarify the challenges facing the industry. The collaboration led to a groundbreaking industry report that reflected the consensus of the electronics supply chain. In the United States, the U.S. Department of Commerce issued a report on the information and communications technology (ICT) supply chain that noted the erosion in domestic manufacturing and made recommendations for greater support of the wider electronics industry. In 2023, President Biden issued a presidential determination that printed circuit boards and semiconductor advanced packaging are crucial to national security. However, funding for defense-related PCBs has been modest, at best.
Greater awareness and seed funding are only the first steps. The long-term ambitions of Europe and the U.S. to revitalize their semiconductor sectors must be matched by effort to revitalize the electronics manufacturing ecosystem. Only when government leaders prioritize a strong “silicon to systems” strategy will there be an opportunity to turn these impending cul de sacs into a huge plaza with multiple avenues leading to innovation and growth.
