AI-driven chip boom opens new export avenues for Pakistan's engineering sector: supply chain opportunities and challenges

AI-driven chip boom opens new export avenues for Pakistan's engineering sector: Supply chain opportunities and challenges

The global semiconductor industry is experiencing rapid growth driven by demand for artificial intelligence (AI), cloud computing, data centers, and advanced electronics. According to the latest forecast from the World Semiconductor Trade Statistics (WSTS) organization, the global semiconductor market will reach approximately $795.6 billion in 2025, a year-on-year increase of 26.2%. Data from the U.S. Semiconductor Industry Association (SIA) shows that global semiconductor sales in April 2025 reached $57 billion, up 22.7% year-on-year. This growth is mainly driven by strong demand for logic chips and memory chips, which are widely used in AI systems, cloud infrastructure, and high-end consumer electronics.

Although advanced chip manufacturing remains concentrated in a few economies, the expansion of the industry chain is creating multiple entry points upstream, midstream, and downstream. For a country like Pakistan, which lacks advanced process capabilities, a realistic option is to leverage its existing manufacturing base in the engineering sector to become a supplier of precision metal parts, industrial tools, electronic components, cable connectors, testing equipment, power systems, and specialized machinery in the semiconductor supply chain. Experts believe that this strategy not only helps Pakistan diversify its exports and reduce dependence on traditional textiles, but also enables it to integrate into the world's fastest-growing technology industry.

Industry chain impact: Entering from supporting links

The semiconductor supply chain can be divided into four major segments: design, manufacturing, packaging and testing, and materials and equipment. Pakistan's entry points are concentrated in the areas of "manufacturing support" and "packaging and testing support." Specifically, these include:

• Upstream (equipment and materials): Semiconductor manufacturing equipment (such as ASML lithography machines, Applied Materials deposition equipment) requires a large number of high-precision mechanical components. Pakistani engineering companies can supply non-core metal structural parts, fasteners, cooling systems, etc. In terms of materials, high-end materials such as photoresists and specialty gases still need to be imported, but opportunities exist in packaging materials, cleaning consumables, etc.
• Midstream (manufacturing and packaging): Wafer fabs and packaging/testing plants require industrial automation equipment, electrical systems, environmental control units, etc. Pakistani companies can participate in supplying automated conveyor systems, cleanroom accessories, power distribution equipment, etc. For example, Muhammad Ali, Business Development Manager at Pakistan's Kamand Private Limited, pointed out that the global semiconductor industry requires a vast supplier network for machined parts, industrial automation equipment, electrical systems, and precision engineering services, and Pakistani manufacturers already possess some capabilities.
• Downstream (applications and end products): AI servers, data centers, etc., consume large amounts of power and cooling equipment. The Pakistani engineering sector can supply cables, connectors, heat dissipation modules, etc.

By focusing on these supporting links, Pakistan avoids the capital-intensive barriers of chip manufacturing and instead leverages its relatively labor-intensive engineering manufacturing advantages.

Competitive landscape: Who benefits and who faces risks?Currently, the global semiconductor engineering support services market is dominated by Southeast Asian countries—Malaysia has a strong position in packaging, testing, and precision component supply, while Vietnam and Thailand are actively attracting electronics manufacturing investment. Pakistan’s entry will increase competition but also bring differentiation:

• Beneficiaries: By obtaining international quality certifications (e.g., ISO 9001, IATF 16949) and technical cooperation, Pakistani engineering companies can secure orders from semiconductor supply chain enterprises in China, Malaysia, Vietnam, Singapore, and elsewhere. Chinese companies (e.g., SMIC, YMTC) and Southeast Asian OSATs (e.g., ASE, Amkor) are potential customers. Additionally, special economic zones under CPEC (China–Pakistan Economic Corridor) can attract technology transfer and joint ventures.
• Those at risk: Low-end metal processing enterprises currently supplying similar components to Southeast Asian suppliers may face price competition, but Pakistan’s labor cost advantage (lower than China, comparable to Southeast Asia) makes it competitive. However, if Pakistan cannot quickly improve quality standards and delivery reliability, it may fail to break into existing supply chain relationships.

Regional impact: Balancing act amid US–China rivalry

• United States: Encourages supply chain diversification. Pakistan, as a non-China sourcing option, may gain favor from US companies, but must overcome geopolitical trust issues. BIS export controls require Pakistani companies to ensure that final uses do not involve restricted entities.
• China: CPEC provides Pakistan with opportunities to connect with China’s semiconductor industry. China may relocate some labor-intensive processes to Pakistan to evade tariffs on Chinese goods or diversify risks.
• Taiwan, South Korea, Japan: These regions are advanced chip manufacturing hubs with high demand for precision components, but quality standards are extremely stringent. It will be difficult for Pakistani companies to enter directly in the short term; they can first supply indirectly through Southeast Asian second-tier suppliers.
• Europe: The EU’s Chips Act promotes local manufacturing. Pakistan can pursue opportunities in equipment maintenance, spare parts supply, etc.
• Southeast Asia: Both cooperation and competition exist. Pakistan can learn from Malaysia’s experience in building a high-quality engineering training system (e.g., the Penang Skills Development Center model).

Investment perspective: From small entries to long-term value

Pakistan’s engineering exports in the semiconductor sector are currently small in value, but have high growth potential. Muhammad Ali stated that Pakistan’s competitive labor costs and expanding manufacturing base help it secure regional supplier contracts. Additionally, Muhammad Ahmed of MicroTech Industries emphasized that Pakistan should focus on upgrading technical skills, obtaining international certifications, and meeting global industry standards.In the long term, if Pakistan can successfully position itself as the "engineering workshop" of the semiconductor supply chain, it can attract foreign investment to build dedicated industrial parks, forming electronics manufacturing clusters similar to Bangalore, India, or Ho Chi Minh City, Vietnam. However, infrastructure shortcomings such as unstable power supply and low logistics efficiency need to be overcome.

Long-term Outlook: The Path for the Next 5-10 Years

1. Short-term (1-3 years): Obtain initial international orders through existing engineering companies (e.g., Kamand, MicroTech), focusing on cables, metal parts, and low-value automation equipment. Establish a semiconductor engineering association to unify standards. 2. Medium-term (3-5 years): Set up specialized industrial parks in CPEC special economic zones, attracting equipment manufacturers to establish maintenance centers or assembly lines. Cultivate local precision machining capabilities. 3. Long-term (5-10 years): If the industrial chain upgrade is successful, Pakistan may enter higher-value-added fields, such as semiconductor equipment module assembly, and supply of components for packaging and testing equipment. However, the threshold is higher, requiring significant technological breakthroughs.

Conclusion

The surge in global semiconductor demand provides a unique window of opportunity for Pakistan's engineering sector. Avoiding front-end manufacturing and focusing on supporting industries is a realistic and sustainable path. This strategy does not require massive capital investment but needs policy coordination, quality improvement, and regional cooperation. If Pakistan seizes this opportunity, it can not only improve its export structure but also carve out a place in the global semiconductor supply chain.

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*This article is based on a report by INP-WealthPk dated July 3, 2026, combined with semiconductor industry data and supply chain analysis.*