The electronics giant Bosch doesn’t seem like a company in need of state support. But it will receive government subsidies of at least €200 million ($223 million) to build a new chip factory in Dresden. In effect, each of the 700 planned jobs is being supported by the state to the tune of €300,000.
It may seem like a waste of public funds, but it is absolutely right to support the new factory so generously. Bosch would have received at least as much money to set up shop in any of the world’s important semiconductor locations. The support also sends a clear sign that the chip industry is very much wanted in Germany, and that the government will support such deals. Lawmakers have finally understood that electronics are just as important as roads, ports and airports for a functional economy.
For years, both the European Union and Germany generally stayed out of the global race in subsidies for the chip industry. As a result, Europe has been overtaken in the chip industry, firstly by Singapore and Taiwan, followed by South Korea and China, and of course by the US, where individual federal states have been campaigning with state support for decades to attract factories.
Because conditions at home were less than attractive, the big European manufacturers of semiconductors built their new factories in Asia. Or they use contract manufacturers like TSMC, which originated in the Far East. And of the American chip giants, only Intel succumbed to an extremely attractive tax deal and set up shop in Ireland.
Americans and Asians recognized earlier than Europeans the fundamental importance of chips for the development of their industry, and that it is important to court the chip industry. Without semiconductors Silicon Valley would never have soared to become global high-tech location number one. Singapore would never have become the IT hub of South-East Asia if the city state had not made early efforts to attract chip manufacturers.
Without chips, no aircraft can move. Even a coffee machine needs semiconductors. When the Internet of Things arrives in full force, nearly all everyday objects will be networked and contain chips.
The German government poured many hundreds of millions of euros into Dresden after the collapse of the former communist East Germany, resulting in the construction of a number of new microchip manufacturing plants. But over the years, the state cut back its support, and local heavyweights Infineon and Globalfoundries invested elsewhere. Also, because the state of Saxony and the federal government refused to support the ailing memory chip manufacturer Qimonda, the listed company went bankrupt. Looking back, this decision was a mistake.
South Korea saved its own memory chip manufacturer Hynix from closure. It is now the biggest memory chip producer in the world and the fourth largest semiconductor manufacturer. Two of the five largest chip companies by revenues originate from this small country. Germany, on the other hand, is not represented at all in the top 10 manufacturers. By having a domestic chip industry, South Korea has also been able to become a trendsetter in consumer electronics.
Of course, European states should not let themselves be blackmailed. Subsidies cannot be allowed to get out of hand, and the states cannot be played off against each other. But it need not come to that. Many semiconductor companies would be happy to settle in Europe with smaller subsidies than they would get in Asia. They find other important location advantages: outstanding universities, stable political conditions and legal security. All of these factors can be taken for granted here, but by no means in the rest of the world. For example, China has been trying to attract semiconductor manufacturers for a long time – with limited success. Many Western concerns fret about hanging on to their know-how, and the important clients are in Europe anyway.
If everything goes well, then the investment by Bosch will be a signal to other chip manufacturers to think about settling in Germany. More jobs are sure to follow the 700 already planned. The semiconductor factory is a complex structure which can only be operated with the help of many specialist suppliers.
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