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At this point, the chip-hungry world needs India as much as we need them (if not more). Recently, the United States announced a strategic partnership with the country with a focus on critical and emerging technology (iCET). The aim was to strengthen the semiconductor supply chains, support the growth of semiconductor design and manufacturing in India on mature technology nodes and packaging in India, and cultivate a skilled workforce.
The US looks to benefit from India to fill the widening gap between the demand and supply of microelectronics engineers that has been slowing its reshoring plans. The shortage of tech talent has been a major concern for countries worldwide. Just as the software workforce from India has dominated the global industries, India will soon latch onto the hardware talent.
Almost all major companies, including Samsung, NXP, Micron, Lam Research, and Applied Materials have substantial semiconductor R&D investments in India. These investments are expected to rise, and are already leveraging the talent available here. In fact, India is a global leader in engineering design and R&D. It has a favourable demographic advantage with a young workforce and a significant number of technologically aligned individuals. However, expanding its potential to manufacturing requires more. Unlike the IT sector, the lack of awareness and availability of job options have been some major hurdles facing the industry.
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Government schemes like Skill India and industry bodies like IESA are attempting to bring a change. Recently, under its Skill India programme, the government announced setting up of multiple international centres across the country, which will skill the youth for international opportunities.
Mature node technology
Additionally, the US-India collaboration specifically highlights working on the mature node process. The US has managed to keep China a few years behind in advanced node technology (with its control on exports), but conversely, the latter is only growing in semiconductor production in the mature node region, surpassing even Taiwan.
India has received much interest from several established companies worldwide after it announced a 50% waiver on the total cost of establishing a fab. Players like Vedanta-Foxconn, Tata Group and PSMC (Powerchip Semiconductor Manufacturing Corp), and most recently, Micron Technology, have made advancements in realising its semiconductor plans in India. These companies have been utilising the incentive schemes to double down on mature node processes.
Semiconductor analyst Arun Mampazhy told AIM, “The US Chips act and the EU efforts are focused on advanced nodes… there are not too many government-driven programmes supporting mature node fabs and India is offering that.”
Rare earth elements
India could play a crucial role in reducing the world’s dependence on China for minerals, which currently amasses 72% of the global supply. India is abundant in 49 critical and non-fuel minerals that have the potential to drive the global semiconductor industry, as outlined in a report by the Council on Energy, Environment and Water (CEEW) and the Ministry of Science & Technology. No wonder why the US-India initiative specifically highlighted fields of advanced materials and rare earth processing technology as areas for future cooperation.
Therefore, in the global semiconductor supply chain ecosystem, as the US and China chart their own courses, India is emerging as a dependable alternative for countries to fulfil their semiconductor needs. To cement its position as a trusted ally, India should form strong collaborations with other nations.
China is NOT the master
The semiconductor supply chain can be divided into three segments: design by fabless companies, manufacturing in fabs, and assembly of ICs into chips. Contrary to popular assumption, China is not the leader in semiconductors. Its USP has only been assembly, producing 36% of the world’s electronics. China’s local and multinational electronics manufacturers import large quantities of semiconductors from Korea, Taiwan, and the United States so they can assemble them into tech products, which are then re-exported or sold in domestic markets.
The chart below depicts a region-wise share of those who contribute to the burgeoning global semiconductor supply chain market.
Source: SIA Research
Evidently, China’s success can be attributed to two reasons: strong government-backing which covers up for the capital-intensive requirements of the industry, as well as the availability of cheap and skilled workforce, particularly in the areas of assembly, packaging, and testing. Because of these reasons, the cost of operation – owing to significant tax breaks – reduces multifold in China. A 2020 Boston Consulting Group report showed the ten-year total cost of ownership of a new fab in the US is 37% higher than that of China.
However, the priorities of the world are changing. As Minister of State for Electronics and IT Rajeev Chandrasekhar said recently, “The supply chains are also being redesigned around concepts of trust and innovation and not on lines of price and efficiency as was done earlier.”
Steady Progress, but Much Work Remains
Despite the US’s vocal support for India as a potential alternative to China in the semiconductor industry, Europe and other nations have been slow to follow. However, as India’s manufacturing and assembly systems gain momentum, it’s likely that these nations will soon jump on the bandwagon.
While efforts are underway to build India’s own semiconductor and display fabrication units, as well as OSAT facilities, it is impossible to envision cutting-off China from end-to-end all alone. The timing is favourable for India to seize opportunities for strategic collaboration as the world faces a growing need.