PMF IAS Store Sale
PMF IAS General Science Book on Amazon

Semiconductor Industry: Major Centres, Locational Factors & Significance

Semiconductor Industry

  • The semiconductor industry has emerged as a critical component of the global technology ecosystem, driving innovations in various electronics, telecommunications, and automation sectors.

What are Semiconductors?

  • Semiconductors are materials which have conductivity between conductors (full conductors of heat and electricity) and insulators (bad conductors of heat and electricity).
  • They form the intricate circuits that power our digital world and drive technological innovations.
  • Semiconductors can be pure elements, such as Silicon (second most common element in Earth’s crust after Oxygen) or Germanium, or compounds like Gallium arsenide or Cadmium selenide.

Processes Involved in the Semiconductor Chip Industry

  • The journey from a tiny silicon wafer to a powerful semiconductor chip involves hundreds of intricate steps and can take up to three months.

Semiconductor Manufacturing Process

Semiconductor Manufacturing Process (Source: electronicsandyou)

  1. Preparation of Silicon wafers: The sand (Silicon dioxide) is melted, crystallised into silicon rods, and then sliced into thin wafers.
  2. Polishing: The wafers are polished to remove defects and ensure smooth surfaces.
  3. Oxidation: Oxygen or water vapour is applied to create a protective oxide film for conductivity.
  4. Photolithography: Circuit designs are drawn onto wafers using Precision Laser light.
  5. Etching: Unnecessary materials are removed using wet or dry etching.
  6. Ion Implantation: Thin film coating and impurities are applied for conductivity.
  7. Metal Wiring: Paths for electricity flow are created using materials like aluminium, tungsten, etc.
  8. Energy Dispersive Spectroscopy: It ensures flawless chips by testing and sorting defective ones.
  9. Individual chips: It involves cutting wafers into individual chips and placing them on a PCB (Printed Circuit Board).

Semiconductor Industry

Factors influencing the Location of Semiconductor Firms around the World

Factors

Explanation

Proximity to Markets
  • Reduces transportation costs and delivery times. For example, NAURA Technology Group in China benefit from proximity to Southeast Asian markets.
Skilled Workforce
  • Fosters R&D, innovation and technological advancement. For example, South Korea’s tech hub benefits from skilled engineers.
Government Support
  • Promotes a conducive environment for the semiconductor industry and encourages innovation and competitiveness through investments.
  • For example, Taiwan government’s Industrial Technology Research Institute propelled the country’s semiconductor sector to become the very apex of the industry.
Cost-Effectiveness
  • Optimisation of operational expenses enhances competitiveness and impacts production costs significantly. E.g. China’s cost-effective manufacturing resources.
Infrastructure and Connectivity
  • Reliable infrastructure supports efficient operations, and connectivity to global networks enhances supply chain efficiency. For example, Germany’s robust infrastructure and connectivity benefit its semiconductor firms.
Research and Innovation Ecosystem
  • A robust ecosystem fosters continuous technological advancements, and collaboration between industry, academia, and research institutions is vital. For example, Israel’s collaborative ecosystem supports its semiconductor industry.
Intellectual Property Protection
  • Strong legal frameworks protecting intellectual property rights attract companies. For example, Switzerland’s stringent IP protection laws.

Major Centres of Semiconductor Manufacturing in the World

  • East Asian countries like Taiwan (TSMC), South Korea (Samsung), and China (NAURA Technology), which account for over 70% of the global market share.
  • The United States is home to chip design and R&D tech giants like Intel and Qualcomm.
  • Europe (Germany and Netherlands) focuses on speciality chips and automotive applications.

Taiwan’s Dominance in Semiconductor Industry

  • Taiwan has emerged as a global powerhouse in the semiconductor industry, producing integrated circuits, microprocessors, and other essential electronic components.

How did Taiwan Get Here?

  • Early start: Recognizing the chip revolution early, the Taiwanese government invested heavily in the 1970s, fostering R&D and attracting talent.
  • Diplomatic alliances: Taiwan strategically leveraged its chip power for diplomacy, fostering alliances and a conflict-free environment for its industry to thrive.
  • Manufacturing facilities: The establishment of Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation transformed Taiwan into a global hub.
  • Consistent improvement: There is a consistent focus on miniaturisation and faster processing power in the country, which keeps the semiconductor industry competitive and helps retain its dominance.

Implications of Taiwan’s Dominance

  • Chokepoints: TSMC manufactures most of the world’s chips. TSMC’s chip manufacturing machinery comes from the Netherlands and supplies its chips mainly to NVIDIA (USA). This has resulted in the creation of Choke points around these companies.
  • Vulnerable Supply Chain: Any disruption in this supply chain could trigger a global tech meltdown affecting industries from automobiles to healthcare to Artificial Intelligence (AI).
  • Geopolitics: Because of its geographic location and strategic position, Taiwan lies at the centre of the US-China rivalry, with both powers flexing to outdo each other, particularly in the semiconductor space.

Disruption in the Semiconductor Industry

  • Demand Hike: During the COVID-19 pandemic, with people spending more time at home and remote work becoming the norm, there was a surge in demand for consumer electronics such as laptops.
  • Global Scramble: The automotive sector began competing for raw materials, intensifying the shortage.
  • Production Bottlenecks: The increased demand outpaced the semiconductor chip supply, leading to unprecedented shortages of consumer durables and vehicles.
  • Supply-Chain Constraints: Palladium and Neon are crucial for semiconductor chip production, with Russia supplying over 40% of the world’s palladium and Ukraine producing 70% of neon.
  • Geopolitical Tensions: Taiwan accounts for 92% of advanced semiconductors. Ongoing trade tensions between the United States and China have impacted chip production in Taiwan.
  • Projected global market size to reach USD 681.05 billion in 2024 (Fortune Business Insights).
  • The market size of the Indian semiconductor industry was USD 34.3 billion in 2023.
Top Producer Top Consumer
Taiwan China
South Korea USA
USA Taiwan
China South Korea

Potential of Semiconductor Industry in India

  • India’s semiconductor industry is at a very nascent stage, dependent on imports.
  • Job prospects: It expects a “ripple effect” from semiconductor industry growth. By 2026, it is projected to generate over 300,000 jobs in downstream sectors like automotive, electronics, and telecom.
  • Talent pool: India has an exceptional semiconductor design talent pool, making up 20% of the world’s semiconductor design engineers, and could generate another 6 lakh jobs.
  • Government focus: The government is dedicated to propelling India into the global forefront as the semiconductor hub under the banners of ‘Atma Nirbhar Bharat’ and ‘Digital India.’

Driving Factors of India’s Semiconductor Industry

  • Rising Demand: India’s burgeoning population and increasing digitalisation have increased demand for semiconductor components.
  • Need for increasing indigenous production: The vision of National Policy on Electronics 2019 (NPE 2019) is to position India as a global hub for Electronics System Design and Manufacturing (ESDM).
  • Technological leadership: India wants to achieve technological leadership in this area of strategic importance, which is also key to the security of the country’s critical information infrastructure.
  • Technological advancements: India’s focus on technological advancements in AI, IoT, 6G, and smart devices necessitates a robust semiconductor industry.
  • Competitive advantage: India boasts a pool of talented engineers and skilled professionals, offering a competitive advantage in designing and developing semiconductor products.
  • Diversification of supply chains: The global shift in supply chains due to geopolitical factors (US-China tension) and the need for diversification provides an opportunity for India.
  • National security: Fortifying digital security infrastructure, fostering technological sovereignty, and enabling secure communication and defence applications contribute to critical national interests.

Semiconductor Industry: India’s Initiatives

Production Linked Incentive (PLI) Scheme

  • MeitY notified the Production Linked Incentive (PLI) Scheme as part of the vision of NPE 2019.
  • Includes 4-6% domestic production-linked incentives to electronics companies that manufacture mobile phones and specified components, including Assembly, Testing, Marking, and packaging units.
  • It offers incentives based on incremental sales designed to boost domestic manufacturing & attract large investments in the sector.
  • In the interim 2024 Union Budget, India increased the allocation for the Semiconductor and display manufacturing scheme (under the Ministry of Electronics and IT) by 130%.

Program for the Development of Semiconductors and Display Manufacturing Ecosystems

  • MeitY has set up the India Semiconductor Mission (ISM) as a dedicated body to drive the program and facilitate investments.
  • It offers financial incentives and support for establishing high-tech clusters and R&D facilities.

India-US Initiative on Critical and Emerging Technologies (iCET)

  • In 2022, India signed the India-US iCET deal to elevate and expand Indo-U.S. strategic technology partnership and defence industrial cooperation between the countries’ governments, businesses, and academic institutions.
  • Six focus areas: Strengthening innovation ecosystems, Defence innovation and technology cooperation, Resilient semiconductor supply chains, Space, STEM (science, technology, engineering, and math) talent and Next-generation telecom.

Design-Linked Incentive (DLI) Scheme

  • Financial and infrastructure support will be provided to companies across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chips, Systems on Chips (SoCs), Systems and IP Cores, and semiconductor-linked design for over five years.
  • Recently, the cabinet approved the establishment of three semiconductor units under this program.
  • Tata Electronics Private Limited (“TEPL”) will partner with Power Chip Semiconductor Manufacturing Corp (PSMC) in Taiwan to establish a semiconductor fab in Dholera, Gujarat.
  • Semiconductor unit in Morigaon, Assam, by Tata Semiconductor Assembly & Test Pvt Ltd (“TSAT”).
  • CG Power, in partnership with Renesas Electronics Corporation, Japan, and Stars Microelectronics, Thailand, will establish a semiconductor unit in Sanand, Gujarat.

Other initiatives

  • Digital India RISC (Reduced Instruction Set Computer) – V (5th generation) (DIR-V) Program: This program aims to enable the production of microprocessors in India, achieving industry-grade silicon and design wins by December 2023.
  • Semicon India program: This program aims to provide attractive incentive support to companies in the semiconductor industry.
  • Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): This scheme is for manufacturing electronic components and semiconductors.
  • Make In India: Aims to transform India into a global hub for Electronic System Design & Manufacturing.

Challenges Faced by the Semiconductor Industry in India

  • Capital-intensive: The Semiconductor fabrication unit undertakings cost billions of dollars for extensive facilities. Therefore, it can be carried out by only a few companies worldwide.
  • High maintenance: They require a high-quality supply of water, electricity, and insulation from the elements, reflecting the high capital needed to make sophisticated circuits.
  • Long gestation: A state-of-the-art fabrication unit can take up to five years before full production, but it requires full financing and continuous labour supply during the gestation period.
  • Lack of highly skilled labour and technology: A semiconductor fab is a multi-step sequence by which electronic circuits are gradually created, and it requires high skills and technology, which India lacks.
  • Scarcity of raw materials: From a value-chain perspective, silicon, Germanium & Gallium arsenide, and Silicon carbide are needed, but they are unavailable in India and must be imported.
  • Disposal of Hazardous Waste: The semiconductor fabrication process involves using toxic materials such as arsenic, antimony, and phosphorus, which can have adverse environmental effects.
  • Geopolitics: Trade war and geopolitical tensions between the USA and China, due to which the USA has put stiff trade restrictions on the supply of cutting-edge technology.

Way forward

  • Focused fiscal support: It is very important to channel fiscal support, initially targeting segments beyond chip fabrication, such as design centres, testing facilities, and packaging, leveraging India’s talent pool.
  • Skilled Workforce Development: There is a need to strengthen educational programs and training initiatives such as the Skill India mission and others to leverage India’s demographic dividend and provide youth with employment opportunities.
  • Global Collaborations: Strengthen alliances with countries like the USA, Taiwan, and Japan to ensure efficient supply chains and access to vital raw materials and technologies.
  • Supply Chain Resilience: Diversify sources, reduce import dependency, and fortify the semiconductor supply chain to mitigate risks from global disruptions.

Apple Electronics and iPhone Manufacturing

  • Apple’s electronics, especially iPhones, have intricate global manufacturing processes. While final assembly happens at a few locations, the journey from raw materials to finished products involves many suppliers and manufacturers worldwide.

China’s Dominance

  • Factors of production: Inexpensive labour, well-established manufacturing infrastructure, and government subsidies in China enable cost-effective mass production.
  • Raw materials: China also controls around 80 per cent of the crucial rare earth minerals.
  • Logistics: China hosts key Apple component suppliers like BOE (display panels) and Sunny Optical (camera lenses), facilitating streamlined logistics, tight control over the production process, and efficient supply chain management.

Challenges in China’s Dominance

  • The escalating trade tensions between the US and China pose a risk to Apple’s supply chain, with concerns about disruptions and potential tariffs on its products.
  • Issues related to worker rights and environmental pollution in Chinese electronics manufacturing have prompted Apple to actively work on improving supplier standards.
  • As labour costs in China rise, the cost advantage that initially drew Apple to China may diminish.

Rise of India as a Manufacturing Hub

  • India offers tax breaks and special economic zones to attract foreign manufacturers like Apple. The PLI scheme (Production-Linked Incentives) provides financial incentives for setting up manufacturing units.
  • India’s rapidly growing market presents an opportunity for Apple to expand sales beyond premium segments, aligning with its strategy to tap diverse consumer markets.
  • India has a large pool of skilled engineers and IT professionals, providing Apple with an alternative for high-tech manufacturing and supporting the intricate manufacturing processes.

Apple’s Shift towards India

  • Apple has started iPhone assembly in India, with Foxconn operating plants in Tamil Nadu and AP.
  • Beyond assembly, Apple is producing components like AirPods in India, enhancing supply chain resilience and strengthening its Indian market presence.
  • Apple aims to establish a comprehensive electronics manufacturing ecosystem in India, with a strong network of suppliers, manufacturers, and supporting infrastructure.

Practice Questions

[Mains Practice] Examine the trade balances between India & East Asian countries in the semiconductor industry and the level of economic interdependence. (15 Marks)

Approach

Introduction
  • Start the answer by mentioning the global semiconductor industry growth poles with emphasis on East Asian countries such as Taiwan, China, and South Korea.
Body
  • Briefly mention the geographical and other factors responsible for the thriving of semiconductor industries in such growth poles of East Asia. (Mentioned in the notes above)
  • Write about the economic interdependence that exists between India and East Asian countries in the semiconductor industry.
  • Discuss in detail the trade balance between these countries and the factors responsible for such deficit concerning the semiconductor manufacturing industry.
Conclusion
  • In the end, briefly mention the potential for India to become a key player in the global semiconductor landscape.

Critically analyse the development of Semiconductor industry in India. (15 Marks)

Approach

Introduction
  • Start the answer by talking about some of the statistics related to the Semiconductor industry in India.
Body
  • Talk about potential and scope.
  • Advantages of India and multiplier effect of the industry.
  • Negatives focusing on the nascence of the industry, the monopoly of China, and the absence of a proper support structure.
Conclusion
  • Focus on innovation, self-reliance, and security as a way forward by discussing initiatives like Make in India, Skill India, Mission Innovation, Atma Nirbhar India, etc.

Taiwan has become a new choke point in the world. Explain in the context of its dominance over the Semiconductor Industry. (15 Marks)

Approach

Introduction
  • Set the context by elaborating on the concept of the Choke point.
Body
  • Briefly discuss the strategic position of Taiwan and how it is the powerhouse of the Semiconductor Industry.
  • Mention the importance of semiconductors.
  • Discuss the supply chain disruptions that could accrue in case of any black swan event (unexpected, catastrophic event), such as War, Conflict, Cyber-attack (like the CrowdStrike Holdings ransomware attack in June 2024), Tsunami, Tornado, terrorist attack, etc.
  • Discuss the rivalry of China-USA.
  • Monopolisation stunts innovation.
Conclusion
  • Need for diversification, democratisation and sustainability of the supply chains.
  • Focus on Indigenisation like India is doing.
  • Better Coordination between countries, especially cooperation between China and the US.

[Prelims Practice] Consider the following statements regarding Silicon:

  1. It is classified as a non-metal.
  2. It is the most abundant metal in the Earth’s Crust.
  3. The most common form of Silicon found in nature is Silica.
  4. Silicon and germanium belong to the same group in the periodic table.
Which of the following options is correct?
  1. 1, 2 & 3 only
  2. 2 & 3 only
  3. 3 & 4 only
  4. 2, 3 & 4 only

Newsletter Updates

Subscribe to our newsletter and never miss an important update!

Assured Discounts on our New Products!

Leave a Reply

Your email address will not be published. Required fields are marked *

Newsletter

Never miss an important update!