Chip wars: Singapore SMEs get a boost from big players’ efforts to nurture ecosystem

Even as Singapore courts major semiconductor investments, chip giants themselves are nurturing the local small and medium-sized enterprises (SMEs) that support them.

These multinational corporations (MNCs) are working with the government and trade associations to improve knowledge transfer or pilot innovations with local suppliers.

Singapore SMEs provide services, solutions, materials, and equipment to bigger chipmakers, or components and spare parts to large equipment manufacturers.

Many of these supporting SMEs have been around for years or decades. Yet efforts to develop them noticeably intensified only in the last five years, partly in response to COVID-era lockdowns and supply chain disruptions, industry players told The Business Times (BT).

This “convergence of interests” happened when MNCs realised during the pandemic that their supply chains were fragile, and saw an urgent need for local suppliers, said Wong Anwei, executive director of the Singapore Precision Engineering and Technology Association (SPETA).
 

Even those that already had local suppliers saw a need for improvement.

In 2020, many semiconductor facilities were at risk of shutting down because their local suppliers – which were not automated enough – lacked the manpower to keep running when foreign workers left, said Ang Wee Seng, executive director of the Singapore Semiconductor Industry Association (SSIA).

The big chipmakers “had a wake-up call”, he added. “They said: ‘Let’s work together. Let’s identify critical potential suppliers that we can help to transform.’”

The pandemic thus intensified ongoing government efforts to rally the semiconductor sector and boost productivity through Industry Transformation Maps, said Ang. The electronics industry was one of the first to get such a road map, in 2017.

MNCs that used to act in silos now come together for initiatives to strengthen the ecosystem, such as using robots for previously manual processes. Local SMEs became more willing to transform, due to the push from their customers.
 

Towards higher standards

That is not to say that Singapore’s semiconductor-supporting industries were entirely lacking before. MNCs told BT that the mature ecosystem is one factor that attracted them.

Singapore’s Economic Development Board (EDB) similarly said that one draw for large chipmakers is the “comprehensive ecosystem of local and foreign suppliers”.

Rather, the issue is that local suppliers lag foreign ones. Some local suppliers cannot meet the high standards required in semiconductor manufacturing, while some capabilities simply cannot be found here.

“The semiconductor industry’s requirements are very different from a typical factory. The things that we deal with are very miniature in nature, and the requirements are super stringent,” said GlobalFoundries senior vice president Tan Yew Kong.

For instance, some industries may be satisfied with 98 to 99 per cent purity for certain chemicals used in their manufacturing processes, but semiconductors require 99.9 per cent purity for the same chemical. Some local suppliers may not be able to meet these standards, noted Tan.

In 2022, additive manufacturing company ELH Tech saw the need to raise its standards. Having done so, it now supplies 3D-printed parts and components to local foundries, including STMicroelectronics.

But getting up to par was difficult – and even now, the company does not meet the requirements to service all of its clients’ equipment, said founder and technical director Simon Si.

“If we have to fulfil 100 per cent (of their needs immediately), I think we will close already. Because we are an SME, we do not have deep pockets to invest,” he said.

The company thus takes a step-by-step approach, gradually improving its capabilities to take on more complex jobs.

Meanwhile, Singapore’s ecosystem simply does not have capabilities such as supplying air filters for clean rooms, nor high-precision ceramic and titanium 3D printing.

Singapore companies are also unable to service extremely high-precision parts with complex components. This capability would require “many years of study” to pick up, said Si.
 

Challenges in upgrading

Faced with obstacles such as high capital requirements and a lack of skilled talent, not all SMEs may be willing or able to upgrade.

“Frankly speaking, a lot of SMEs in engineering... have already spent 30 years in the trade the traditional way,” said ELH’s Si. “If you ask them to invest in a 3D printer, which costs S$1 million, to start a new process again... they won’t... they would rather just wait for retirement.”

Even for companies like ELH which have the ambition of someday serving big equipment manufacturers, achieving scale is a challenge. In a chicken-and-egg problem, adoption of 3D printing by chipmakers here is relatively low compared to the US and Europe.

SMEs also struggle to recruit and retain skilled engineers, many of whom would rather work for large MNCs or in more “exciting” sectors such as finance and tech.

At additive manufacturing firm Forefront AM, engineers tend to leave after two or three years – a churn rate that the company now takes as the norm, said managing director Wu Yong Lin.

Given the lack of time, talent, and capital, Singapore’s semiconductor ecosystem may never grow to become capable of supporting the most advanced chip technologies, said a local back-end player.

ELH’s Si agreed that due to the limitations of its supporting industries, Singapore’s semiconductor capabilities are likely to stay in the middle, between the most generic and the most advanced components.
 

Deepening collaborations

Still, efforts to upgrade these SMEs continue.

The government has shifted the focus of its aid for semiconductor-supporting players from productivity efforts to innovation and “capability building in higher-value activities”, noted Anne Ho, director for advanced manufacturing at Enterprise Singapore (EnterpriseSG).

MNCs can further spur this transformation. As semiconductor and equipment giants expand operations here, this “attracts more foreign suppliers and allows more local suppliers to grow their capacities and capabilities”, said an EDB spokesperson.

EDB wants to further catalyse partnerships between MNCs and local businesses, as well as build up local capabilities. The Partnerships for Capability Transformation scheme has been enhanced to support this, while national research institute A*STAR facilitates such tie-ups.

Said Ho: “Such collaborations not only enable larger companies to build more resilient relationships in the Singapore ecosystem, but also help our SMEs to benefit from the technical knowledge, resources and networks of their larger partners, to deepen their capabilities and expand their operations to more regional and global markets.”

Such initiatives by the government and trade associations help to increase MNCs’ awareness of local suppliers, said Bertrand Stoltz, STMicroelectronics executive vice president for finance, global business services and financial system, and Asia public affairs.

“We got to know ELH through SSIA’s introduction. We need more of these awareness and connectivity (efforts) on who are available in local SMEs that have the relevant technology that we need,” he said.

Working with local suppliers ensures that repairs can be done quickly, so factories have minimal downtime, said GlobalFoundries’ Tan. “Otherwise, if you need to wait for supplies and support from overseas, it will have a time lag in terms of flying in the parts.”

For SMEs, such collaborations open doors to more customers through further introductions and word of mouth, said ELH’s Si. Since its partnership with STMicroelectronics, the company’s chip business has grown to 15 to 20 per cent of overall revenue, up from one to five per cent before.

Fellow SMEs are also doing their part. Local startup Factorem connects global manufacturers to local suppliers on its online platform where suppliers list their services for manufacturers to choose, based on their needs.

Co-founder Alexandra Zhang said that a big part of the company’s early years was spent going door to door to make a case to local suppliers that there were opportunities in the global market. Forty-six per cent of its transactions involve international buyers.

“Once they see (the jobs that are out there), I feel... the picture speaks for itself,” she said. Suppliers are charged per transaction gained via the platform.

EnterpriseSG also helps SMEs access the foreign market by leading overseas trips and keeping tabs on developments that may bring new opportunities. For instance, EnterpriseSG and SSIA plan to take SMEs to India later this year.

With US firms increasingly diversifying and sourcing for Latin America-based suppliers in the nearshoring trend, some SMEs are also exploring Mexico as a potential market for expansion, said EnterpriseSG’s Ho.

By upgrading, SMEs can also improve their relationships with MNCs. Having specialised and higher-end capabilities can help SMEs become critical to an MNC’s supply chain, and thus retain that client.

SPETA’s Wong noted that semiconductor giants usually categorise suppliers in tiers based on their importance. “If you’re in tier three and tier four, you may be in a space where there are many others apart from you,” he said. In contrast, being a critical tier one supplier ensures a level of “stickiness” to the client.

Still, having capabilities may not be enough to secure a close relationship, he added. Big players often have an established pool of suppliers, so local enterprises will need to present a strong business case to be considered.
 

Source: The Business Times © SPH Media Limited. Permission required for reproduction.